BILL ANALYSIS                                                                                                                                                                                                    



                                                                       



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                              UNFINISHED BUSINESS


          Bill No:  SB 202
          Author:   Harman (R)
          Amended:  8/12/10
          Vote:     21

           
           ALL SENATE VOTES NOT RELEVANT

          ASSEMBLY FLOOR  :  74-0, 8/16/10 - See last page for vote


           SUBJECT  :    Trustees:    duties

           SOURCE  :     Trusts and Estates Section of the State Bar


           DIGEST  :    This is a new bill.  The provisions of this bill  
          dealing with the continuing education of private  
          investigators were deleted in the Assembly.  
          This non-controversial bill, sponsored by the Trusts and  
          Estate Section of the State Bar, seeks to reduce disputes  
          by bringing clarity and certainty to the law describing the  
          parties' rights and obligations in the area of trustee  
          accountability.  This bill makes 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 are properly protected,  
          including closing a loophole that may permit evasion of the  
          required notice of trust administration, providing that  
          late service of notice is nonetheless effective to trigger  
          the 120-day statute of limitations to file a trust contest,  
          and increasing the amount of a trust that a trustee may  
          terminate without court permission from $20,000 to $40,000.  
                                                           CONTINUED





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           Finally, this bill declares that it is against public  
          policy for a trust instrument to waive the beneficiary's  
          right to information and access to records.  

           ANALYSIS  :    

          Existing law: 

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

          This bill clarifies several aspects of trust  
          administration.  Specifically, this bill: 







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          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.

             C.    The Attorney General, for a charitable trust, if  
                either #A or #B, above, is satisfied. 

          5. Except for charitable remainder trusts, as define,  
             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. 








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          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.Allows the court, on its own motion, to give notice of  
             an order to show cause why a trustee, who is a  
             professional fiduciary and who is required to be  
             licensed, should not be removed for failing to be so  
             licensed. 

          14.Makes other clarifying and conforming changes. 

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

           SUPPORT  :   (Verified  8/17/10)

          Trusts and Estates Section of the State Bar (source)


           ARGUMENTS IN SUPPORT  :    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  







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          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 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.  This 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. 


           ASSEMBLY FLOOR  : 
          AYES:  Adams, Ammiano, Anderson, Arambula, Beall, Bill  
            Berryhill, Tom Berryhill, Block, Blumenfield, Bradford,  
            Brownley, Buchanan, Caballero, Carter, Chesbro, Conway,  
            Cook, Coto, De La Torre, De Leon, DeVore, Eng, Evans,  
            Feuer, Fletcher, Fong, Fuentes, Fuller, Furutani, Gaines,  
            Galgiani, Garrick, Gatto, Gilmore, Hagman, Hall, Harkey,  
            Hayashi, Hernandez, Hill, Huber, Huffman, Jeffries,  
            Jones, Knight, Lieu, Logue, Bonnie Lowenthal, Ma,  
            Mendoza, Miller, Monning, Nava, Nestande, Niello,  
            Nielsen, V. Manuel Perez, Portantino, Ruskin, Salas,  
            Saldana, Silva, Skinner, Smyth, Solorio, Audra  
            Strickland, Swanson, Torlakson, Torres, Torrico, Tran,  
            Villines, Yamada, John A. Perez
          NO VOTE RECORDED:  Bass, Blakeslee, Charles Calderon,  
            Davis, Norby, Vacancy


          RJG:mw  8/17/10   Senate Floor Analyses 







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                         SUPPORT/OPPOSITION:  SEE ABOVE

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