BILL ANALYSIS ------------------------------------------------------------ |SENATE RULES COMMITTEE | SB 202| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ UNFINISHED BUSINESS Bill No: SB 202 Author: Harman (R) Amended: 8/12/10 Vote: 21 ALL SENATE VOTES NOT RELEVANT SENATE JUDICIARY COMMITTEE : 4-0, 8/23/10 AYES: Corbett, Hancock, Leno, Walters NO VOTE RECORDED: Harman 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 CONTINUED SB 202 Page 2 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. 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 SB 202 Page 3 and finally from the principal of the trust. This bill 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. 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. SB 202 Page 4 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.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 8/25/10) Trusts and Estates Section of the State Bar (source) ARGUMENTS IN SUPPORT : Increasingly, revocable trusts are SB 202 Page 5 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 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, SB 202 Page 6 Davis, Norby, Vacancy RJG:mw 8/26/10 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END ****