BILL ANALYSIS Ó
AB 1985
Page 1
Date of Hearing: April 10, 2012
ASSEMBLY COMMITTEE ON JUDICIARY
Mike Feuer, Chair
AB 1985 (Silva) - As Amended: April 9, 2012
PROPOSED CONSENT
SUBJECT : TRUSTS AND ESTATES: CONSTRUCTION OF INSTRUMENTS
KEY ISSUE : SHOULD EXISTING LAW PROTECTING DESIGNATED
BENEFICIARIES OF PROPERTY UNDER A WILL AGAINST EXTINCTION OR
DEVALUATION OF THE GIFT AFTER THE DONOR BECOMES INCAPACITATED BE
EXTENDED TO REVOCABLE TRUSTS?
FISCAL EFFECT : As currently in print this bill is keyed
non-fiscal.
SYNOPSIS
This non-controversial measure would clarify the existing law of
trusts by explicitly providing protection against the
elimination of specific gifts in situations where the settlor of
a revocable trust has become incapacitated and the actions of
the trustee or other specified causes threaten to eliminate the
intended gift or reduce its value, thus frustrating the intent
of the settlor. This bill provides that, in such instances, the
intended recipient of the specific gift would retain a right to
a general pecuniary gift, as specified. The author, sponsor
Conference of California Bar Associations, and the Trust and
Estates Section of the California Bar (TEXCOM) all support the
bill on the grounds that it ensures the same degree of
protection of specific gifts in the context of revocable trusts
that now exists in the context of wills.
SUMMARY : Extends protections against the ademption of specific
gifts due to the acts of an incapacitated principal's
conservator or agent to cover acts of a trustee of a revocable
trust whose settlor has become incapacitated. Specifically,
this bill :
1)Provides that where the settlor of a revocable trust executes
a specific gift and thereafter becomes incapacitated, and the
trustee of the revocable trust subsequently sells or encumbers
the specifically given property, the transferee of the
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specific gift has the right to either a) in the case of sale
of the property, a general pecuniary gift equal to the net
sale price of the property without regard to the payoff of any
encumbrances incurred by the trustee after the settlor's
incapacity, or b) in event that the property is encumbered but
not sold, the amount of the unpaid encumbrance on the property
as well as the property itself.
2)Provides that where the settlor of a revocable trust executes
a specific gift and thereafter becomes incapacitated, and the
trustee of the revocable trust subsequently receives an award
resulting from a taking of the property by eminent domain,
proceeds on fire or casualty insurance on the property, or
recovery for injury to the property, the transferee of the
specific gift has the right to a general pecuniary gift equal
to the eminent domain award, insurance proceeds, or recovery,
paid to the trustee.
EXISTING LAW :
1)Provides that where a principal executes a specific gift and
thereafter becomes incapacitated, if a conservator or agent
acting within the authority of a durable power of attorney
then sells or mortgages the specifically given property, the
transferee of the specific gift has the right to a general
pecuniary gift equal to the net sale price of, or the amount
of the unpaid loan on, the property. (Probate Code Section
21134(a). Unless stated otherwise, all further references are
to this code.)
2)Provides that where a principal executes a specific gift and
thereafter becomes incapacitated, the recipient of the
specific gift has the right to a general pecuniary gift equal
to any eminent domain award for the taking of the specifically
given property, proceeds of fire or casualty insurance on the
property, or recovery for injury to the property, paid to a
conservator or agent acting within the authority of a durable
power of attorney for the incapacitated principal. (Section
21134(b).)
3)Provides that statutes preventing ademption in specified
circumstances are not exhaustive and are not intended to
increase the incidence of ademption under California law.
(Section 21139.)
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COMMENTS : This bill would make explicit that protections
against ademption of specific gifts that apply to wills also
apply to trusts. The author and the sponsor, the Conference of
California Bar Associations, explain the clarifying effects of
the recent amendment:
Existing law (Probate Code § 21134) provides that when a
testator makes a specific gift of real property to a
beneficiary in a will, then becomes incapacitated and
his or her conservator or agent sells or encumbers the
property, the designated beneficiary is entitled to
receive either the unencumbered property or its value
prior to the encumbrance by the conservator or agent.
However, the law does not provide the same protection to
the designated beneficiary of a trust, if the trustor
becomes incapacitated and the property is encumbered or
sold by a successor trustee.
One court faced with the issue has held in Brown v.
LaBow (2007), 157 Cal.App.4th 795, that § 21134 also
applies to trusts, but it had to rely heavily on
inference to do so.
The bill also protects against the ademption of a specific gift
in instances where, after a settlor of a revocable trust becomes
incapacitated, the property is taken by eminent domain or is
damaged. In such instances, this bill seeks to effect the
intent of the settlor by clarifying that the transferee of the
specifically given property is entitled to a general pecuniary
gift equal to the eminent domain award, insurance proceeds, or
other recovery paid to the trustee.
In addition, this bill clarifies that the presumption of a
principal's incapacity applicable to actions taken by an agent
under a durable power of attorney does not apply to actions
taken by trustees under a revocable trust.
TEXCOM supports the bill as recently amended. TEXCOM notes the
need to explicitly apply the protections of Probate Code Section
21134 to the law of trusts: "As the use of trusts in estate
planning has become more pervasive, the lack of references in
the current statute to trusts, to specific gifts in trust by
settlors, and to the possible effects on specific gifts of
actions by trustees during a settlor's incapacity are glaring
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omissions that rightly deserve to be corrected."
REGISTERED SUPPORT / OPPOSITION :
Support
Conference of California Bar Associations (sponsor)
Trust & Estates Section of the California State Bar
Opposition
None on File
Analysis Prepared by : Leora Gershenzon and Joshua Fox / JUD.
/ (916) 319-2334