BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 997|
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THIRD READING
Bill No: AB 997
Author: Wagner (R)
Amended: 6/28/11 in Senate
Vote: 21
SENATE JUDICIARY COMMITTEE : 5-0, 06/14/11
AYES: Evans, Harman, Blakeslee, Corbett, Leno
SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8
ASSEMBLY FLOOR : 70-0, 05/12/11 (Consent) - See last page
for vote
SUBJECT : Professional fiduciaries
SOURCE : Author
DIGEST : This bill exempts a nonprofit corporation or
charitable trust from the requirements of the Professional
Fiduciaries Act (PFA), provided that the corporation or
trust meets specified requirements.
ANALYSIS : Existing law provides licensing requirements
and oversight of professional fiduciaries. (Bus. & Prof.
Code Sec. 6500 et seq.)
Existing law defines "professional fiduciary" to mean a
person who acts as a conservator of the person, the estate,
or person and estate, or guardian of the estate, or person
and estate, for two or more individuals at the same time
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who are not related to the professional fiduciary or to
each other, or 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, as defined, at the same time. (Bus. &
Prof. Code Sec. 6501(f)(1)-(2).)
Existing law exempts from the PFA a trust company, as
defined, an FDIC-insured institution, or its holding
companies, subsidiaries, or affiliates, as defined, any
public agency, including the public guardian, public
conservator, or other agency of the State of California or
of a county of California or any regional center for
persons with developmental disabilities, as defined, and
any person whose sole activity as a professional fiduciary
is as a broker-dealer, broker-dealer agent, investment
adviser, or investment adviser representative, as
specified. (Bus. & Prof. Code Sec. 6501(f)(4).)
Existing law requires professional fiduciaries to satisfy
licensing requirements. (Bus. & Prof. Code Sec. 6530.)
Exempt from these licensing requirements are attorneys,
certified public accountants, and enrolled agents, as
defined.
Existing federal law exempts from federal tax certain
private foundations, including a corporation or foundation,
organized and operated exclusively for religious,
charitable, scientific, testing for public safety,
literary, or educational purposes, or to foster national or
international amateur sports competition, or for the
prevention of cruelty to children or animals, no part of
the net earnings of which inures to the benefit of any
private shareholder or individual, no substantial part of
the activities of which is carrying on propaganda, or
otherwise attempting, to influence legislation, and which
does not participate in, or intervene in, any political
campaign on behalf of (or in opposition to) any candidate
for public office. (I.R.C. Sec. 501(c)(3).)
Existing federal law exempts from federal tax certain
public charities, including:
Churches, schools, hospitals, and other
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organizations that receive their public support
primarily from gifts, grants, and contributions from a
broad group of people;
Organizations that receive their support from a
combination of gifts, grants, and contributions and
fees for their exempt services; and
Organizations that support other public charities,
governmental units and certain other exempt
organizations. They receive public charity status
because of the relationship, without regard to the
source of their income. (I.R.C. Sec. 509(a).)
Existing federal law provides restrictions on tax exemption
status for private foundations and public charities,
including, among other things, prohibitions on transactions
in which the organization provides loans or compensation in
excess of reasonable salaries for personal services
actually rendered to the creator, family member of the
creator, or persons making substantial contributions to the
organization. (I.R.C. Sec. 503.)
Existing state law provides for the regulation of
charitable trustees. (Prob. Code Sec. 15604; Gov. Code
Sec. 12580 et seq.)
This bill exempts from the PFA any nonprofit corporation or
charitable trust that is described in Internal Revenue Code
Section 501(c)(3) and that satisfies all of the following
requirements:
1.Is an organization described in Internal Revenue Code
Sections 509(a)(1)-(3);
2.Has been in existence for at least five years;
3.Has total institutional funds, as specified, according to
its most recent audited financial statement with a value
of at least two million dollars ($2,000,000) net of
encumbrances; and
4.Is acting as a trustee, incidental to the purposes for
which it was organized, of a trust that meets at least
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one of the following conditions:
It is a charitable remainder trust, as defined;
It is a trust from which annual distributions are
limited to a guaranteed annuity or a fixed percentage
of the fair market value of the property, as defined;
It is a pooled income fund trust from which annual
distributions are limited to income, including a
pooled income fund, as defined; or
It is a trust as to which the value of the
charitable interest was presently ascertainable upon
creation of the trust and deductible for federal gift,
estate, or income tax purposes, as defined.
This bill also makes technical corrections to the PFA.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
SUPPORT : (Verified 6/28/11)
Association of Independent California Colleges and
Universities
Aviva Shiff Boedecker Charitable Planning Associates
Bakersfield Memorial Hospital Foundation
Biola University
California Baptist University
California State Parks Foundation
California State University, Long Beach Foundation
Claremont McKenna College
Episcopal Diocese of California
Executive Committee of the Tax Exempt Organizations
Standing Committee of the Taxation Section of the State
Bar of California
Executive Committee of the Trusts & Estates Section of the
State Bar of California
Holy Names University
Jewish Community Foundation of Los Angeles
Kaspick & Company
KQED
Lucile Packard Foundation for Children's Health
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Mount St. Mary's College
Nature Conservancy
Nonprofit & Unincorporated Organizations Committee of the
Business Law Section of the State Bar of California
Northern California Planned Giving Council
Pepperdine University
Point Loma Nazarene University
Pomona College
San Francisco Foundation
Santa Clara University
Silicon Valley Community Foundation
Stanford University
University of California
University of San Diego
University of San Francisco
University of Southern California
OPPOSITION : (Verified 6/28/11)
The Professional Fiduciary Association of California
ARGUMENTS IN SUPPORT : According to the author's office:
The proposed exemption for limited types of charities
administering limited types of trusts is necessary
because the PFA would (i) violate donors' expectations
of privacy, (ii) be unduly burdensome because the PFA
states all of its requirements based on individuals
acting as fiduciaries, and (iii) divert resources that
otherwise could support the charities' tax-exempt
purposes, without providing any additional benefit to
the public given the existing oversight of charities.
The proposed limited exemption also promotes the
prevailing public policy to encourage donations to
charities through their planned giving programs. The
California legislature has repeatedly affirmed the
primary responsibility and jurisdiction of the
California Attorney General over charities. The
California Attorney General's office maintains an
active Legal and Audits Unit that investigates and
prosecutes charities accused of breaching their
fiduciary duties to properly administer charitable
funds. The Legal and Audits Unit of the AG's
Charitable Trusts Section takes its responsibilities
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seriously; it regularly files actions to prosecute
charities accused of breaching their fiduciary duties.
ARGUMENTS IN OPPOSITION : The opposition states:
"The Professional Fiduciary Association of California
(PFAC) regrets that we must oppose AB 997 in its current
form. PFAC is a membership association providing services
to private professional fiduciaries and their clients
throughout California. The Association has long been a
strong supporter of programs, legislation, and other
efforts that strengthen quality services and protections
for seniors in this state. In keeping with this
commitment, we were the sponsors of SB 1550 (Figueroa)
which legislation resulted in the Professional Fiduciaries
Act that is the framework of the licensing and oversight of
private professional fiduciaries. We are very concerned
with any legislation that in any way dilutes the scope of
this oversight and licensure protocol. PFAC has become
increasingly more alarmed at the repeated attempts to
further dilute the effect and intent of that Act. In our
minds, the potential effects of AB 997 are pretty
straightforward - weakening the Act. We do not believe
that there is any compelling evidence that would
necessitate the exempting of yet another group of
individuals from the scope of this Act, which has the
effect of diminishing the intent and consequence of current
statute. For example, a member of the Special Needs Trust
Foundation Board has noted that it is critical to have a
licensed professional fiduciary on their Board, that these
and other similar Boards do not have the working knowledge
to make critical decisions required. And, they recognize
the liability exposure the Board Members have without such
accountability in place. We firmly believe that intent of
the legislature in enacting the Professional Fiduciaries
Act was to protect the public, not to exempt every special
interest group from compliance. We have seen too many
examples of such exemptions from essential education,
oversight and licensure. Because of these significant
concerns, we must respectfully oppose AB 997. Thank you
for considering our views in this most important matter."
ASSEMBLY FLOOR : 70-0, 05/12/11 (Consent)
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AYES: Achadjian, Allen, Ammiano, Atkins, Beall, Bill
Berryhill, Block, Blumenfield, Bonilla, Bradford,
Brownley, Buchanan, Butler, Charles Calderon, Campos,
Carter, Chesbro, Cook, Davis, Dickinson, Donnelly, Eng,
Feuer, Fletcher, Fong, Fuentes, Furutani, Beth Gaines,
Galgiani, Gatto, Gordon, Grove, Hagman, Halderman, Hall,
Harkey, Hayashi, Hill, Huber, Hueso, Huffman, Jeffries,
Jones, Knight, Lara, Logue, Ma, Mansoor, Mendoza, Miller,
Monning, Morrell, Nestande, Nielsen, Norby, Olsen, Pan,
Perea, V. Manuel Pérez, Silva, Skinner, Smyth, Solorio,
Swanson, Valadao, Wagner, Wieckowski, Williams, Yamada,
John A. Pérez
NO VOTE RECORDED: Alejo, Cedillo, Conway, Garrick, Gorell,
Roger Hernández, Bonnie Lowenthal, Mitchell, Portantino,
Torres
RJG:nl 6/28/11 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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