BILL ANALYSIS
SB 1575
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Date of Hearing: June 25, 2002
ASSEMBLY COMMITTEE ON JUDICIARY
Ellen M. Corbett, Chair
SB 1575 (Sher) - As Amended: April 9, 2002
(VOTE ONLY) As Proposed to Be Amended
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, and defines
cohabitant for the purposes of the existing exemption for
cohabitants.
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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
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
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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.
(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.
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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,
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.
SB 1575 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
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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
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 Added . The bill is proposed to be
amended since it last was heard by the Committee, to incorporate
the definition of "cohabitant" set forth in Penal Code section
13700. Section 13700 states:
For purposes of this subdivision, "cohabitant" means two
unrelated adult persons living together for a substantial
period of time, resulting in some permanency of
relationship. Factors that may determine whether persons
are cohabiting include, but are not limited to, (1) sexual
relations between the parties while sharing the same living
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quarters, (2) sharing of income or expenses, (3) joint use
or ownership of property, (4) whether the parties hold
themselves out as husband and wife, (5) the continuity of
the relationship and (6) the length of the relationship.
This appears to be a workable definition that provides adequate
guidance to the courts while still allowing individual
circumstances to be considered as to the applicability of the
exemption in a particular case.
REGISTERED SUPPORT / OPPOSITION :
Support
State Bar Estate Planning, Trust and Probate Law Section
(sponsor)
Opposition
Campaign for California Families
Analysis Prepared by : Kathy Sher / JUD. / (916) 319-2334