BILL ANALYSIS                                                                                                                                                                                                    



                                                                  SB 202
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          SENATE THIRD READING
          SB 202 (Harman)
          As Amended June 17, 2010
          Majority vote 

           SENATE VOTE  :Vote not relevant  
           
           BUSINESS & PROFESSIONS          APPROPRIATIONS                  
               (vote not relevant)                (vote not relevant)
           
          JUDICIARY           10-0                                        
           
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          |Ayes:|Feuer, Tran, Brownley,    |     |                          |
          |     |Evans, Hagman, Huffman,   |     |                          |
          |     |Jones, Knight, Monning,   |     |                          |
          |     |Saldana                   |     |                          |
          |-----+--------------------------+-----+--------------------------|
          |     |                          |     |                          |
           ----------------------------------------------------------------- 
           SUMMARY  :  Clarifies several aspects of trust administration.   
          Specifically,  this bill  :    

          1)Allows a trustee to terminate a trust, without court approval,  
            if the value of the trust does not exceed $40,000.

          2)Requires a trustee, on request, to provide a beneficiary with  
            the terms of the trust, unless the trustee is specifically not  
            required to do so.

          3)Clarifies that a trustee, upon reasonable request by a  
            beneficiary, must provide the beneficiary with specific  
            information relating to the administration of the trust  
            relevant to the beneficiary's interest.

          4)Requires a trustee to provide a copy of an irrevocable trust,  
            or the irrevocable portions of the trust to:

             a)   The beneficiary of the trust, as specified, including  
               upon the death of a settlor who established an irrevocable  
               trust with power of appointment;
             b)   A beneficiary when there is a change of trustee; or,
             c)   The Attorney General, for a charitable trust, if either  
               a) or b), above, is satisfied.








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          5)Requires the trustee to serve notice on beneficiaries and  
            heirs when the settlor has retained a power of appointment to  
            appoint beneficiaries and that power, upon the death of the  
            settlor, is effective or lapses.

          6)Clarifies that service of required trust notification, even if  
            late, will commence the 120-day period for contesting a trust.

          7)Distinguishes those situations in which a trustee is obligated  
            to provide a formal accounting from those where the trustee is  
            required to report only information requested by a  
            beneficiary.

          8)Prevents a settlor from waiving the trustee's duty to report  
            trust information to beneficiaries.

          9)If a beneficiary has waived the right to a trust accounting,  
            allows the waiver to be withdrawn for transactions occurring  
            after the date of the written withdrawal of the waiver.   
            Regardless of whether the beneficiary has waived accountings,  
            allows a court, upon a showing that it is reasonably likely  
            that a material breach of trust has occurred, to compel the  
            trustee to account.

          10)   Clarifies that a beneficiary may petition the court to  
            require a trustee to provide the beneficiary with the terms of  
            the trust.

          11)   Clarifies that any waiver by a settlor of the trustee's  
            obligation to provide the terms of the trust or specified  
            information to a beneficiary is void as against public policy.

          12)   Clarifies that, in determining priority for payment of the  
            unitrust amount (the amount of annual distribution paid out  
            under a unitrust), capital gains are not included in net  
            taxable income.

          13)   Makes other clarifying and conforming changes.

           EXISTING LAW  : 

          1)Governs the creation, validation, modification, termination,  
            and administration of trusts, and provides for the  








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            adjudication of disputes relating to the trust.  Provides for  
            the rights and responsibilities of all parties to a trust,  
            i.e., the settlor (i.e., the creator of the trust), trustee,  
            beneficiary, heir, and a third party, such as a creditor.  

          2)Allows a trustee to terminate a trust, without court approval,  
            if the value of the trust does not exceed $20,000.  

          3)Requires the trustee, when a revocable trust becomes  
            irrevocable, to provide a copy of the terms of the trust to  
            any heir or beneficiary upon request.  

          4)Requires a trustee to provide notification to beneficiaries  
            and heirs as specified.  

          5)Provides that an action to contest a trust may not be brought  
            more than 120 days from the date that the trustee serves  
            notification or 60 days from the date a copy of the trust is  
            mailed or delivered, whichever is longer.  

          6)Provides that either a beneficiary or a settlor may waive the  
            right to a trust accounting, except as specified.    

          7)Provides that the unitrust amount is to be paid first from net  
            taxable income, then from short-term capital gains, then  
            long-term capital gains, then other income and finally from  
            the principal of the trust.  

           FISCAL EFFECT  :  None
           
          COMMENTS  :  Increasingly, revocable trusts are replacing wills as  
          the primary vehicle by which people transfer property at death.   
          The principal advantage of the revocable trust, made irrevocable  
          by the death of the settlor or upon the happening of an event  
          specified in the trust, is that it can be drafted in such a way  
          as to avoid probate court altogether when the time comes to  
          distribute the estate of a decedent.  This non-controversial  
          bill, sponsored by the Trusts and Estates Section of the State  
          Bar (Section), seeks to make a number of relatively minor  
          changes to trust administration to make the law of trusts more  
          workable for trustees and to help ensure that the interests of  
          beneficiaries and heirs are properly protected. 

          According to the Section, the purpose of the bill is to reduce  








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          disputes by bringing clarity and certainty to the law describing  
          the parties' rights and obligations in the area of trustee  
          accountability.  The Section believes that this bill will reduce  
          the expense of trust administration by encouraging informal,  
          targeted and responsive replies to requests from beneficiaries  
          rather than superfluous or burdensome formal reporting  
          requirements.  The bill, which requires greater accountability  
          from trustees, should, the Section believes, instill greater  
          confidence in beneficiaries, discourage actual breaches of trust  
          by trustees, and reduce needless litigation engendered by a lack  
          of communication and information.  

           
          Analysis Prepared by :    Leora Gershenzon / JUD. / (916)  
          319-2334 


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