BILL ANALYSIS                                                                                                                                                                                                    



                                                                  SB 1575
                                                                  Page  1

          Date of Hearing:   June 11, 2002

                           ASSEMBLY COMMITTEE ON JUDICIARY
                               Ellen M. Corbett, Chair
                     SB 1575 (Sher) - As Amended:  April 9, 2002

           SENATE VOTE  :   23-10
           
          SUBJECT  :   WILLS AND TRUSTS:  PROHIBITED TRANSFEREES

           KEY ISSUE  :  SHOULD THE STATUTORY EXCEPTIONS TO CERTAIN  
          PROHIBITED TRANSFERS BY WILL OR TRUST BE UPDATED AND CLARIFIED?

                                      SYNOPSIS
                                          
          This bill, sponsored by the Estate Planning, Trust and Probate  
          Section of the State Bar, is intended to clarify the statutory  
          provision setting forth exceptions to the prohibition on certain  
          transfers by will or trust.  Under existing law, certain persons  
          are disqualified from receiving a transfer under an instrument  
          as defined in the Probate Code, including the drafter of the  
          instrument or a person who is related to, a cohabitant with, or  
          an employee of the drafter.  Existing law excepts from  
          disqualification a transfer where the transferor is related to  
          or is a cohabitant with the transferee or the person who drafted  
          the instrument.  This bill would specifically apply the  
          exception where the transferor is the registered domestic  
          partner of the transferee or the person who drafted the  
          instrument, would make an additional exception for transfers  
          under three thousand dollars, and make other clarifying changes.  
           Although the change regarding domestic partners is consistent  
          with the existing exception for cohabitants, the Campaign for  
          California Families opposes it out of a belief it extends rights  
          of marriage to domestic partners.

           SUMMARY  :   Modifies the exceptions to the prohibition on  
          transfers to certain persons by instrument.  Specifically,  this  
          bill  :   

          1)Adds to the list of persons exempted from the prohibited  
            transferee rule a registered domestic partner.

          2)Requires that an attorney independently reviewing an  
            instrument in order to permit an otherwise prohibited transfer  
            attempt to determine if the intended consequence is the result  








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            of fraud, menace, duress or undue influence.

          3)Clarifies that for purposes of exempting a transfer on the  
            basis of an independent review of the instrument, the original  
            certificate of independent review is to be delivered to the  
            transferor, with a copy delivered to the drafter.

          4)Removes the prohibition on testimony from the transferee when  
            a court is called upon to determine if a transfer was the  
            product of fraud, menace, duress or undue influence.

          5)Exempts transfers of up to $3000 from the prohibition on  
            transfers, except where the total value of the estate is under  
            $100,000.

          6)Exempts transfers made by an instrument executed by a  
            nonresident of California who was not a residence at the time  
            of execution and where the instrument was not signed within  
            California.

           EXISTING LAW  :

          1)Defines an instrument as a will, trust, deed or other writing  
            that designates a beneficiary or makes a donative transfer of  
            property.  (Probate Code section 45.  All further references  
            are to this code unless otherwise noted.)

          2)Voids any provision or provisions in any instrument that makes  
            a donative transfer to the following persons:

             a)   the person who drafted the instrument, or his or her  
               relative by blood or marriage, or his or her cohabitant or  
               employee;

             b)   any partner or shareholder of a law firm or corporation  
               in which the person who drafted the instrument holds an  
               interest, or an employee of that law firm or law  
               corporation;

             c)   any person who is in a fiduciary relationship with the  
               transferor, such as a conservator or trustee, who  
               transcribes the instrument or causes the instrument to be  
               transcribed, or that person's relative or cohabitant;

             d)   a care custodian of a dependent adult.








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             (Section 21350.)

          3)Exempts from the prohibition set forth in (2) transfers made  
            under the following circumstances:

             a)   if the transferor is related by blood or marriage to the  
               person who drafted the instrument;

             b)   if the instrument was reviewed by an independent  
               attorney who counsels the transferor about the nature of  
               the intended transfer and who signs and delivers to the  
               transferor and to the drafter a certificate of independent  
               review stating his or her conclusion that the transfer was  
               not the product of fraud, duress, menace or undue  
               influence;  

             c)   if the court approves the instrument and orders the  
               transfer after full disclosure of the relationships of the  
               persons involved;

             d)   as to specified instruments, if the court determines,  
               upon clear and convincing evidence, excluding the testimony  
               of the prohibited transferee, that the transfer was not the  
               product of fraud, menace, duress or undue influence;

             e)   if the transferee is a federal, state or local entity, a  
               tax-exempt 501(d) (3) or 501(c)(19) entity or a trust  
               holding an interest in the tax-exempt entity or its  
               trustee.
             (Section 21351.)

           FISCAL EFFECT  :   The bill as currently in print is keyed  
          non-fiscal.

           COMMENTS  :   This bill is sponsored by the Estate Planning, Trust  
          and Probate Law Section of the State Bar to update and clarify  
          the provisions of the prohibited transferee rule, prohibiting  
          transfers by instrument to certain persons including the drafter  
          of the instrument, persons related to the drafter, or  
          cohabitants with or employees of the drafter.  

          In 1993, California enacted AB 21 (Umberg) (Chapter 293,  
          Statutes of 1993), disqualifying specified persons from  
          receiving a transfer under an instrument, such as the person who  
          drafted the instrument, his or her employee, relative,  








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          cohabitant, or law partner or law firm shareholder, and  
          generally persons in a fiduciary capacity relative to the donor  
          or the transferor.  The bill was enacted in response to abuses  
          by an attorney who drafted wills that made himself and his  
          children major beneficiaries of his clients.

          The bill enacting the prohibited transfer rule also enacted  
          exceptions to that rule, if the relationship between the  
          transferor and the transferee was such that it was unlikely that  
          the transfer was the result of undue influence, fraud or duress.  
           Thus, an otherwise prohibited transfer to the drafter of the  
          instrument could be made, for example, if the drafter was also  
          the spouse or relative of the transferor.  

          This bill makes several refinements to the exceptions to the  
          prohibited transfer rule.  First, it expressly recognizes the  
          status of registered domestic partners by including them in the  
          exceptions to the prohibited transfer rule.  Thus under the  
          bill, the drafter of an instrument could be a beneficiary of the  
          instrument if he or she were the domestic partner of the  
          transferor.  This is a clarification of existing law, which  
          makes an exception if the transferor is a cohabitant of the  
          transferee.  The Campaign for California Families opposes the  
          bill on the basis of this provision, stating, "This bill  
          undermines the vote of the people by awarding more rights of  
          marriage to homosexual 'domestic partners'."  This concern  
          appears unwarranted, as it is difficult to imagine a case in  
          which a domestic partner would not be included under the  
          existing exemption for cohabitants.

          Second, the bill strengthens the provisions allowing an  
          exception to the prohibited transfer rule if the instrument is  
          reviewed by an independent attorney.  SB 1575 would require the  
          attorney to discuss the consequences of the proposed instrument  
          with the transferor, and to attempt to determine if it resulted  
          from fraud, menace, duress, or undue influence.  

          The bill removes the restriction on a court receiving the  
          testimony of the disqualified transferee in determining whether  
          the transfer was the product of fraud, menace, duress or undue  
          influence.  The bill precludes the court, however, from making  
          its decision solely upon such testimony.  The Trusts and Estates  
          Section notes that such matters are only heard by judges, not  
          juries, and states its belief that judges are able to weigh  
          competing testimony and decide issues of credibility without the  








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          need for a blanket prohibition.  

          The bill creates an exemption for transfers of no more than  
          $3000, if the total value of the estate does not exceed the  
          small estate limit set in section 13100 (currently $100,000).   
          This change is intended to allow small gifts to service  
          providers to whom a transferor may wish to make a gift in  
          recognition of the service provided.  

          Under existing law, an instrument executed by a person who was  
          not a resident of California at the time of execution, may be  
          exempted from the prohibited transfer rule if the court  
          determines that the transfer was not the product of fraud  
          menace, duress, or undue influence.  Under SB 1575, the  
          instrument may be exempted without a court determination if it  
          was executed by a nonresident of California who was a  
          nonresident at the time of execution, and the instrument was not  
          signed within California.  This provides a categorical exemption  
          for instruments by nonresidents and signed outside of the state.

          Finally, the bill modifies the definition of "related by blood  
          or marriage" for purposes of exemption of transfers to a person  
          so related to include persons related within the fifth degree,  
          instead of the seventh degree, and adds heirs of the transferor.  
           This is intended to avoid application of the exemption in the  
          case of a distant relative, with the relationship perhaps not  
          even known to the transferor, while protecting the exemption  
          where such a distant relative is an heir or next of kin of the  
          transferor.   

           Definition of Cohabitant  .  There is no definition of  
          "cohabitant" referenced in the existing code sections (which  
          continue in effect under this bill) voiding transfers to the  
          cohabitant of the drafter of the instrument, or making an  
          exception to the prohibition on certain transfers if the  
          transferor is a cohabitant with the transferee or the drafter.   
          For purposes of clarity and ease of application of these  
          provisions,  the author may wish to amend the bill  to define  
          "cohabitant" for these purposes using the definition set forth  
          in Family Code Section 6209:  "'Cohabitant' means a person who  
          regularly resides in the household."  

           REGISTERED SUPPORT / OPPOSITION  :

           Support 








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          State Bar Estate Planning, Trust and Probate Law Section 
           
            Opposition 
           
          Campaign for California Families

           Analysis Prepared by  :    Kathy Sher / JUD. / (916) 319-2334