BILL ANALYSIS SB 308 Page 1 Date of Hearing: June 30, 2009 ASSEMBLY COMMITTEE ON BUSINESS AND PROFESSIONS Mary Hayashi, Chair SB 308 (Harman) - As Amended: June 15, 2009 SENATE VOTE : 37-0 SUBJECT : Professional fiduciaries: donative transfers. SUMMARY : Revises the definition of a "professional fiduciary" (PF) and clarifies that public employees are exempt from licensure if they are acting within the scope of employment. Specifically, this bill : 1)Redefines "PF" to mean a person acting as a conservator or guardian of the person, the estate, or person and estate for two or more individuals unrelated to the PF. 2)Redefines "PF" to mean a person who acts as a trustee, agent under a durable power of attorney for health care, or agent under a durable power of attorney for finances, for more than three individuals at the same time. Establishes the following method to count individuals: a) Individuals who are related to the PF shall not be counted; b) All individuals who are related to each other shall be counted as one individual; and, c) All trustors who are related to each other shall be counted as one individual, and neither the number of trusts nor the number of beneficiaries of those trusts shall be counted. 3)Defines "related" to mean related by blood, adoption, marriage, or registered domestic partnership. 4)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 PF exemption for public agencies and public officers. 5)Defines lineal kinship or consanguinity as the relationship SB 308 Page 2 between two persons, one of whom is a direct descendant of the other (e.g., parent and child) and by counting the generations separating one from the other. Each generation is referred to as a degree. 6)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 (e.g., 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). 7)Contains various conforming changes made by SB 1264 (Harman), Chapter 174, Statutes of 2008. EXISTING LAW : 1)Authorizes the Professional Fiduciaries Bureau (Bureau) to regulate and license professional fiduciaries. 2)Defines "PF" 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 PF or to each other by blood, adoption, marriage, or registered domestic partnership. 3)Defines "PF" to include a person who acts as a trustee, agent under a durable power of attorney for 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 PF by blood, marriage, or registered domestic partnership. 4)Provides that certain classes of entities and individuals are exempt from the designation of "PF." 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 PF for purposes of the Professional Fiduciaries Act (PFA), as long as the employee is acting in the course and scope of that employment. 5)Exempts from the designation of "PF" a public officer or public agency, including the public guardian, public conservator, or other agency of the state or a county, SB 308 Page 3 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. FISCAL EFFECT : Unknown COMMENTS : Purpose of the bill . According to the author's office, "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 Title 16 of the California Code of Regulations, Section 4406 (e)(2), but the sponsor believes that for clarity the rule should be contained in the statute. "Second, the sponsor believes that the Business and Professions Code 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." Background . In 2006, the Legislature enacted a package of bills to reform the conservatorship system in California. The Omnibus Conservatorship and Guardianship Reform Act of 2006 was a bill package that included the following pieces of legislation: SB 1116 (Scott), Chapter 490, Statutes of 2006; SB 1550 (Figueroa), Chapter 491, Statutes of 2006; SB 1716 (Bowen), Chapter 492, Statutes of 2006; and, AB 1363 (Jones), Chapter 493, Statutes of 2006. The major features of the bill package included: increased frequency of court review of conservatorships; broadened scope of court investigators' reports; special procedures for the sale of a conservatee's primary residence; and, 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 PFA for the purpose of licensing and SB 308 Page 4 regulating individuals who act as conservators, guardians, trustees, personal representatives, or agents under a durable power of attorney for health care or finances, for two or more persons unrelated to the PF or to each other, as specified. Public agency 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 PF 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 (CJA), makes technical, clarifying amendments to the PFA with regards to conservators, guardians, and trustees who may qualify as professional fiduciaries under the PFA. Conservators, guardians, and trustees . Under existing law, a "PF" 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 PF 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 estate, for the conservatee, and that "guardian" means guardian of the estate, or guardian of both the person and estate, for the ward. These changes are consistent with former Probate Code (PC) provisions and simply and appropriately exclude from regulation under the PFA a guardian who is taking care of a child who has no assets. Under existing law, a "PF" also means a person who acts as a trustee or an agent under a durable power of attorney for health care or finances for more than three people or three families, or a combination of people and families that total more than three, at the same time, who are not related to the PF by blood, adoption, marriage, or registered domestic partnership. This language was adopted from the former statute (PC 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 SB 308 Page 5 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, CJA, wants clarity in the statute, to ease the transition to the new PF statutes, and to be able to implement the provisions of the PFA 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 Bureau. 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 PFA, 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 PF provisions as well. As recommended by the California Law Revisions Commission (CLRC), this bill also provides guidance, for the entire PC, on how to determine kinship or consanguinity and how to calculate degrees of kinship. In 1982, the CLRC had recommended repealing former PC 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 PC, and it is now relevant once more to provide guidance. The definitions contained in this bill are consistent with the repealed statutes. Arguments in support . According to CJA, "The bill clarifies that for purposes of counting unrelated parties in determining when it is necessary to obtain a license as a PF, only trustors SB 308 Page 6 are counted, not beneficiaries or trusts. This avoids unnecessarily requiring a license for a person who establishes multiple trusts for one family." Prior Legislation . SB 1264 (Harman), Chapter 174, Statutes of 2008, establishes a statutory scheme governing no contest clauses in wills and trusts, and other donative instruments that become irrevocable on or after January 1, 2001. SB 1215 (Harman) of 2008 was a measure identical to SB 308 that was not heard in Assembly Judiciary Committee. SB 1047 (Committee on Business, Professions and Economic Development), Chapter 354, Statutes of 2007, extended the licensing deadline from July 1, 2008 to January 1, 2009. AB 1363 (Jones), Chapter 493, Statutes of 2006, established additional court oversight requirements of conservatorships. SB 1116 (Scott), Chapter 490, Statutes of 2006, established a presumption regarding residence of conservatee and increased sale requirements of a conservatee's residence. SB 1550 (Figueroa), Chapter 491, Statutes of 2006, established the Board within the DCA for the purpose of licensing and regulating professional fiduciaries. SB 1716 (Bowen), Chapter 492, Statutes of 2006, allowed ex parte communication in cases involving fiduciaries and expands court review of conservators. REGISTERED SUPPORT / OPPOSITION : Support California Judges Association (CJA) (sponsor) Judicial Council Opposition SB 308 Page 7 None on file. Analysis Prepared by : Joanna Gin / B. & P. / (916) 319-3301