BILL ANALYSIS SB 308 Page 1 Date of Hearing: June 23, 2009 ASSEMBLY COMMITTEE ON JUDICIARY Mike Feuer, Chair SB 308 (Harman) - As Amended: June 15, 2009 PROPOSED CONSENT SENATE VOTE : 37-0 SUBJECT: Professional Fiduciaries: Qualifications KEY ISSUE : SHOULD THE DEFINITION OF "PROFESSIONAL FIDUCIARY" BE CLARIFIED TO DETERMINE WHO HAS TO BE LICENSED UNDER THE PROFESSIONAL FIDUCIARIES ACT? FISCAL EFFECT : As currently in print this bill is keyed fiscal. SYNOPSIS The Professional Fiduciaries Act, enacted as part of the Omnibus Conservatorship and Guardianship Reform Act of 2006, defines and regulates professional fiduciaries. A professional fiduciary may be a conservator, guardian, or trustee, as specified. This non-controversial bill, sponsored by the California Judges Association, is a technical measure that refines the definition of "professional fiduciary" to include varying types of conservators and guardians and specifies how trusts and beneficiaries are counted for purposes of that definition. It also excludes from the definition employees of public officers or agencies that are now specifically exempt from the requirements imposed on professional fiduciaries, when those employees are acting within the course and scope of their official duties. This bill is supported by the Judicial Council and has no known opposition. SUMMARY : Clarifies who is considered a "professional fiduciary" under the Professional Fiduciaries Act. Specifically, this bill : 1)Clarifies that a "conservator" may be a "conservator of the person, the estate, or person and estate" and that a "guardian" means a "guardian of the estate, or person and estate." SB 308 Page 2 2)Clarifies that in making this determination: 1) all individuals who are related to each other are counted as one individual; 2) trustors related to each other shall count as one individual; and 3) neither the number of beneficiaries nor the number of trusts are to be counted for purposes of this qualification of a professional fiduciary. Also specifies that individuals who are related to the fiduciary shall not be counted. 3)Includes employees of a public agency and a public officer of a public agency, as specified, acting in the course and scope of their official duties, in the professional fiduciary exemption for public agencies and public officers. 4)Defines lineal kinship or consanguinity as the relationship between two persons, one of whom is a direct descendant of the other (parent and child, for example) and by counting the generations separating one from the other. 5)Defines collateral kinship or consanguinity as the relationship between two people who spring from a common ancestor, but neither person is the direct descendant of the other (thus siblings are related in the second degree, an aunt or niece is related to the person in the third degree, and a first cousin is related in the fourth degree). 6)Contains various provisions intended to conform the statutes to the changes made by SB 1264 (Harman, Chap. 174, Stats. 2008). EXISTING LAW : 1)Defines and regulates the activities of professional fiduciaries. (Business & Professions Code Section 6500 et seq. Unless stated otherwise, all further references are to the Business & Professions Code.) 2)Defines "professional fiduciary" as a person who acts as a conservator or guardian for two or more persons at the same time who are not related to the professional fiduciary or to each other by blood, adoption, marriage, or registered domestic partnership. (Section 6501(f).) 3)Defines "professional fiduciary" to include a person who acts as a trustee, agent under a durable power of attorney for SB 308 Page 3 health care, or agent under a durable power of attorney for finances, for more than three people or more than three families, or a combination thereof that totals more than three at the same time, that are not related to the professional fiduciary by blood, marriage, or registered domestic partnership. (Id.) 4)Provides that certain classes of entities and individuals are exempt from the designation of "professional fiduciary." An employee of a trust company or an FDIC-insured institution or its affiliate (both of which are exempt under existing law) is also exempt from designation as a professional fiduciary for purposes of the Professional Fiduciaries Act, as long as the employee is acting in the course and scope of that employment. (Id.) 5)Exempts from the designation of "professional fiduciary" a public officer or public agency, including the public guardian, public conservator, or other agency of the state or a county, including a regional center for persons with developmental disabilities, when the officer or agency is acting in the course and scope of their official duties. (Id.) COMMENTS : In 2006, the Legislature enacted a package of bills to reform the conservatorship system in California. Major features of the reforms, embodied in the Omnibus Conservatorship and Guardianship Reform Act of 2006 (SB 1116 (Scott, Chap. 490), SB 1550 (Figueroa, Chap. 491), SB 1716 (Bowen, Chap. 492) and AB 1363 (Jones, Chap. 493)) are: 1) increased frequency of court review of conservatorships; 2) broadened scope of court investigators' reports; 3) special procedures for the sale of a conservatee's primary residence; and 4) the regulation and licensing of private professional fiduciaries including private professional conservators. These measures were compelled by a series of articles in the media revealing widespread abuse of vulnerable elders and dependent adults by conservators and deficiencies in the courts' oversight of conservatorships. SB 1550 established the Professional Fiduciaries Act (PFA) for the purpose of licensing and regulating individuals who act as conservators, guardians, trustees, personal representatives, or agents under a durable power of attorney for health care or for finances, for two or more persons unrelated to the professional fiduciary or to each other, as specified. Public agency SB 308 Page 4 fiduciaries (public guardians and public conservators) and those employed by banks and trust companies are exempt from this regulatory scheme. SB 1550 prohibits a court from appointing a person as a private professional conservator, guardian, or trustee, or permitting a person to continue to serve as such, unless he or she is licensed as a professional fiduciary and has filed evidence of the license with the clerk of the court in each county where a petition for appointment has been filed. This bill, sponsored by the California Judges Association, makes technical, clarifying amendments to the PFA with regards to conservators, guardians, and trustees who may qualify as professional fiduciaries under the PFA. In support of the bill, the author writes: SB 308 is a very technical measure designed to codify the principle that, for purposes of determining when a trustee must be licensed, only trustors should be counted, and not beneficiaries or trusts. In many cases trusts may have large numbers of beneficiaries, and large numbers of trusts and sub-trusts might have been established for tax reasons by a small number of trustors. The language codifying this point is already included in regulations adopted by the Professional Fiduciaries Bureau, Title 16 CCR Section 4406(e)(2), but for clarity the rule should be contained in the statute. Second, the sponsor believes that Section 6501 is unclear that persons employed by entities exempt from licensure, but who are "moonlighting" as professional fiduciaries, must be licensed. The bill thus contains language clarifying this point. Conservators, guardians, and trustees . Under existing law, a "professional fiduciary" means a person who acts as a conservator or guardian for two or more persons at the same time who are not related to the professional fiduciary by blood, adoption, marriage, or registered domestic partnership. This bill clarifies that "conservator" means conservator of the person or of the estate, or conservator of both the person and SB 308 Page 5 estate, of the conservatee and that "guardian" means guardian of the estate, or guardian of the person and estate, of the ward. These changes are consistent with former Probate Code provisions and simply and appropriately exclude from regulation under the PFA a guardian of the person, that is an adult who is taking care of a child who has no assets. Under existing law, a "professional fiduciary" also means a person who acts as a trustee or an agent under a durable power of attorney for health care or for finances for more than three people or three families, or a combination of people and families that totals more than three, at the same time, who are not related to the professional fiduciary by blood, adoption, marriage, or registered domestic partnership. This language was adopted from the former statute (Probate Code Section 2854) which exempted from the requirement of registration in the Statewide Registry a trustee who serves as trustee for the benefit of not more than three people or three families or any combination of both that totals not more than three. This bill clarifies that the counting of three people or three families shall be based on the number of unrelated trustors, not the number of beneficiaries of the trusts or the number of trusts involved. The reason for this is that trusts may have classes of beneficiaries or a number of beneficiaries greater than three. There may also be subtrusts created by a general trust, even by the same trustor or trustors. The sponsor of the bill, the California Judges Association, wants clarity in the statute, to ease the transition to the new professional fiduciary statutes, and to be able to implement the provisions of the Professional Fiduciaries Act more easily. Thus, a husband and wife who have executed separate trusts with mutual provisions will count as one family, even though there are in reality two trusts that a trustee would serve under. These clarifying provisions are already embodied in the regulations adopted by the Professional Fiduciaries Bureau at the Department of Consumer Affairs, the agency with jurisdiction over professional fiduciaries. Restrictions on "moonlighting" employee would apply to employees of public agencies and public officers . Under current law, an employee of a trust company or FDIC-insured financial institution or its holding companies, subsidiaries, or affiliates is exempt from the licensing requirements of the SB 308 Page 6 Professional Fiduciaries Act, provided the employee is acting in the course and scope of that employment. This bill extends these restrictions on "moonlighting" employees to employees of public agencies and public officers who are exempt from the professional fiduciary provisions as well. This bill also defines how to count degrees of kinship or consanguinity: how to count the ways . As recommended by the California Law Revisions Commission (CLRC), this bill also provides guidance, for the entire Probate Code, on how to determine kinship or consanguinity and how to calculate degrees of kinship. In 1982, the CLRC had recommended repealing former Probate Code Sections 251-253, which then contained the general rules of construction with respect to kinship and consanguinity. At that time, the CLRC states, they felt that the provisions were not necessary for purposes of the law governing wills and intestate succession. Since then, many other pieces of legislation have returned the concept of degree of kinship and consanguinity to the Probate Code, and it is now relevant once more to provide guidance. The definitions contained in this bill are consistent with the repealed statutes. Technical Corrections : This bill also contains corrections to obsolete cross-references to the no-contest clause provisions of the Probate Code that were repealed by SB 1264 (Harman), Chap. 174, Stats. 2008. SB 1264 repealed the former no-contest clause statute. ARGUMENTS IN SUPPORT : In support of the bill, the Judicial Council writes: "The bill's statutory clarification of the definition of professional fiduciary should help avoid confusion and ease the courts' overall administration of these cases." Prior Legislation : The Omnibus Conservatorship and Guardianship Reform Act of 2006 consisted of SB 1116 (Scott, Chap. 490), SB 1550 (Figueroa, Chap. 491), SB 1716 (Bowen, Chap. 492) and AB 1363 (Jones, Chap. 493). REGISTERED SUPPORT / OPPOSITION : Support California Judges Association (sponsor) Judicial Council SB 308 Page 7 Opposition None on file Analysis Prepared by : Leora Gershenzon / JUD. / (916) 319-2334