BILL ANALYSIS                                                                                                                                                                                                    



                                                                       



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          |SENATE RULES COMMITTEE            |                   AB 229|
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                                 THIRD READING


          Bill No:  AB 229
          Author:   Charles Calderon (D)
          Amended:  1/4/10 in Assembly
          Vote:     21

           
           SENATE JUDICIARY COMMITTEE  :  5-0, 6/15/10
          AYES:  Corbett, Harman, Hancock, Leno, Walters

           ASSEMBLY FLOOR  :  71-0, 1/19/10 (Consent) - See last page  
            for vote


           SUBJECT  :    Uniform Principal and Income Act:  trust  
          administration:  
                      income payment

           SOURCE  :     California Bankers Association


           DIGEST  :    This bill clarifies that when a separate fund  
          payer does not provide the value of the internal income of  
          the separate fund to the trustee and the trustee cannot  
          otherwise determine the value of the separate fund, the  
          internal income of the separate fund is deemed to equal the  
          product of the interest rate and the present value of the  
          expected future payments.

           ANALYSIS  :    Existing federal law requires a trustee to pay  
          the taxes on the trust's share of taxable income from  
          income or principal receipts.  (IRC Sec. 2001.)

          Existing federal law provides for a marital tax deduction.   
                                                           CONTINUED





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          (IRC Sec. 2056.)

          Existing state law governs the distribution of income,  
          principal, and interest under a trust and the allocation of  
          distributions to beneficiaries by a trustee or of payments  
          received by a trust.  (Prob. Code Sec. 16320 et seq.)
          Existing state law provides that a "separate fund" includes  
          a private or commercial annuity, an individual retirement  
          account, and a pension, profit-sharing, stock bonus, or  
          stock ownership plan.  (Prob. Code Sec. 16361(a)(2).)

          Existing state law requires a trustee to determine the  
          "internal income" of each separate fund for the accounting  
          period, as if the separate fund were a trust subject to the  
          California UPIA, except as provided, and requires the  
          trustee to allocate the balance to the principal.  (Prob.  
          Code Sec. 16361(c).)

          Existing state law provides for the allocation of a  
          separate fund payment to a trust qualifying for a marital  
          deduction.  (Prob. Code Sec. 16361(d).)

          Existing state law provides a method of determining the  
          value of the internal income of a separate fund in the  
          event the separate fund payer does not provide the internal  
          income value of the separate fund.  (Prob. Code Sec. 16361  
          (g).)

          This bill clarifies the existing provisions for determining  
          the value of a separate fund "payment" that is required to  
          be allocated to income for purposes of qualifying for a  
          marital tax deduction under federal tax law.

           FISCAL EFFECT  :    Appropriation:  No   Fiscal Com.:  No    
          Local:  No

           SUPPORT  :   (Verified  6/17/10)

          California Bankers Association (source)


           ARGUMENTS IN SUPPORT  :    The author's office writes, "This  
          bill is intended to correct ambiguity in Probate Code  
          Section 16361 (PC Section 16361), relating to a  







                                                                AB 229
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          3

          determination of the "internal income" of a separate fund,  
          as specified.  As currently written, subdivision (g) of PC  
          Section 16361 prescribes two alternative formulas for  
          determining the "internal income" of the fund in the  
          absence of the necessary documentation.  The language of  
          that subdivision specifies the circumstances under which  
          the first formula - 4% of the fund's value must be used by  
          the trustee.  Specifically, it is required to be used when  
          the documentation from the fund is not available but the  
          trustee can determine the value of the fund.  However,  
          subdivision (g) is silent as to when the second formula -  
          the product of the interest rate and the present value of  
          the expected future payments - must be utilized.   
          Subdivision (g) simply states that the second formula must  
          be used when the fund payer does not provide the  
          documentation reflecting the internal income of the fund.   
          To clarify the original intent of AB 1545, this bill  
          specifies that the second formula should be used when, in  
          the absence of the documentation, the trustee  cannot   
          determine the value of the separate fund."

          The sponsor of this bill, the California Bankers  
          Association, states that banks often act as trustees for  
          many trusts.  This bill clarifies the method for trustees  
          to allocate funds received from a separate fund when the  
          value of the internal income is not provided by the  
          separate fund payer and the trustee otherwise cannot  
          determine the value.  This clarification is necessary so  
          that trustees are not later charged with tax liabilities  
          for choosing the wrong method of determining the internal  
          income. 
          
           ASSEMBLY FLOOR  : 
          AYES:  Adams, Ammiano, Anderson, Arambula, Beall, Bill  
            Berryhill, Tom Berryhill, Blakeslee, Block, Blumenfield,  
            Bradford, Buchanan, Caballero, Chesbro, Conway, Cook,  
            Coto, De La Torre, De Leon, DeVore, Emmerson, Eng, Evans,  
            Feuer, Fletcher, Fong, Fuentes, Fuller, Furutani, Gaines,  
            Galgiani, Garrick, Gilmore, Hagman, Harkey, Hayashi,  
            Hernandez, Hill, Huber, Huffman, Jeffries, Jones, Knight,  
            Lieu, Logue, Ma, Mendoza, Miller, Monning, Nava,  
            Nestande, Niello, Nielsen, John A. Perez, V. Manuel  
            Perez, Portantino, Ruskin, Salas, Saldana, Silva,  
            Skinner, Smyth, Solorio, Audra Strickland, Swanson,  







                                                                AB 229
                                                                Page  
          4

            Torlakson, Torres, Torrico, Tran, Villines, Yamada
          NO VOTE RECORDED:  Brownley, Charles Calderon, Carter,  
            Davis, Hall, Bonnie Lowenthal, Bass


          RJG:do  6/17/10   Senate Floor Analyses 

                         SUPPORT/OPPOSITION:  SEE ABOVE

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