Amended in Assembly April 18, 2013

California Legislature—2013–14 Regular Session

Assembly BillNo. 1029


Introduced by Assembly Member Maienschein

February 22, 2013


An act to amend Section 16350 of the Probate Code, relating to trusts and estates.

LEGISLATIVE COUNSEL’S DIGEST

AB 1029, as amended, Maienschein. Trusts and estates: allocations of receipts.

Existing law regulates the administration of trusts and the estates of decedents andbegin delete, in this regard,end delete establishes the Uniform Principal and Income Act. Existing law defines “income” in this regard and prescribes rules for determining the character of money received from an entity. Existing law generally requires that money received from an entity be allocated to income, but provides that money received in total or partial liquidation of the entity is allocated to principal. Existing law establishes rules for determining whether money is received in partial liquidation, including if the total amount of money and property received by all owners, collectively, in a distribution or series of related distributions is greater than 20% of the entity’s gross assets, as specified.

This bill would revise and recast the requirements by which a trustee is to determine whether money received from a distributing entity is be treated as a partial liquidation. The bill would provide that a trustee is not liable for any claim of improper allocation of the receipt that is based on information that was not received or actually known by the trustee as of the date of allocation,begin delete asend deletebegin insert provided that the trustee satisfiesend insert specifiedbegin insert requirementsend insert. The bill would also make various technical changes.

Vote: majority. Appropriation: no. Fiscal committee: no. State-mandated local program: no.

The people of the State of California do enact as follows:

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SECTION 1.  

Section 16350 of the Probate Code is amended
2to read:

3

16350.  

(a) For the purposes of this section, “entity” means a
4corporation, partnership, limited liability company, regulated
5investment company, real estate investment trust, common trust
6fund, or any other organization in which a trustee has an interest
7other than a trust or decedent’s estate to which Section 16351
8applies, a business or activity to which Section 16352 applies, or
9an asset-backed security to which Section 16367 applies.

10(b) Except as otherwise provided in this section, a trustee shall
11allocate to income money received from an entity.

12(c) A trustee shall allocate to principal the following receipts
13from an entity:

14(1) Property other than money.

15(2) Money received in one distribution or a series of related
16distributions in exchange for part or all of a trust’s interest in the
17entity.

18(3) Money received in totalbegin insert liquidation of the entityend insert orbegin insert inend insert partial
19liquidation of the entitybegin insert, as defined in subdivision (d)end insert.

20(4) Money received from an entity that is a regulated investment
21company or a real estate investment trust if the money distributed
22is a capital gain dividend for federal income tax purposes.

23(d) For purposes of paragraph (3) of subdivision (c), money
24shall be treated as received in partial liquidation to the extent the
25amount received from the distributing entity is attributable to the
26proceeds from a sale by the distributing entity, or by the distributing
27entity’s subsidiary or affiliate, of a capital asset as defined in
28Section 1221 of the Internal Revenue Code. The following shall
29apply to determine whether money is received in partial liquidation:

30(1) A trustee may rely without investigation on a written
31statement made by the distributing entity regardingbegin delete the source ofend delete
32 the receipt.

P3    1(2) A trustee may rely without investigation onbegin delete anyend delete other
2information that is actually known by the trustee regarding the
3begin delete source of theend delete receipt.

4(3) With regard to each receipt from a distributing entity, if
5within 30 days from the date ofbegin insert theend insert receipt the distributing entity
6provides no written statement to the trusteebegin delete regarding the source
7of the receiptend delete
begin insert that the receipt is a distribution attributable to the
8proceeds from a sale of a capital asset by the distributing entity
9or by the distributingend insert
begin insert entityend insertbegin insert’s subsidiary or affiliateend insert and the trustee
10has no actual knowledgebegin delete regarding the source ofend deletebegin insert thatend insert the receiptbegin insert end insert
11begin insertis a distribution attributable to the proceeds from a sale of a capital
12asset by the distributing entity or by the distributing entity’s
13subsidiary or affiliateend insert
, then the following shall apply:

14(A) The trustee shall have no duty to inquire or investigate
15whether the receipt from the distributing entity is in partial
16liquidation of the entity.

17(B) If the receipt from the distributing entity is in excess of 10
18percent of the value of the trust’s interest in the distributing entity,
19then the receipt shall be deemed to be received in partial liquidation
20of the distributing entity, and the trustee shall allocate all of the
21receipt to principal. For purposes of this subparagraph, the value
22of the trust’s interest in the distributing entity shall be determined
23as follows:

24(i) In the case of an interest that is a security regularly traded
25on a public exchange or market, the closing price of the security
26on the public exchange or market occurring on the last business
27day before the date of the receipt.

28(ii) In the case of an interest that is not a security regularly traded
29 on a public exchange or market,begin insert the trust’s proportionate share
30ofend insert
the valuebegin insert of the distributing entityend insert as set forth in the most recent
31appraisalbegin insert actually received by the trustee andend insert prepared by a
32professional appraiser begin deleteof the trust’s interest in the distributing
33entity end delete
with a valuation date within three years of the date of the
34receiptbegin delete, if the appraised value is actually known to the trustee
35without any duty of the trustee to investigate the existence of the
36appraisalend delete
. The trustee shall have no dutybegin insert to investigate the existence
37of the appraisal orend insert
to obtain an appraisal nor shall the trustee have
38any liability for relying upon an appraisal prepared by a
39professional appraiser. The term “professional appraiser” shall
40refer to an appraiser who has earned an appraisal designation for
P4    1valuing the type of property subject to the appraisal from a
2recognized professional appraiser organization.

3(iii) In the case of an interest that is not a security regularly
4traded on a public exchange or market and for which there is no
5appraisal meeting the requirements of clause (ii),begin delete the value of the
6trust’s interest in the distributing entity shall beend delete
the trust’s
7proportionate share of the distributing entity’s net assets as shown
8in the distributing entity’s yearend financial statements immediately
9preceding the receipt.

10(iv) If the trust’s interest in the distributing entity cannot be
11valued under clause (i), (ii) or (iii), the federal cost basis of the
12trust’s interest in the distributing entity on the date immediately
13before the date of the receipt.

begin delete

14(e) For purposes of subdivision (d), a written statement or other
15information “regarding the source of the receipt” refers to a written
16statement or other information indicating whether or not the receipt
17is attributable to the proceeds from a sale by the distributing entity,
18or by the distributing entity’s subsidiary or affiliate, of a capital
19asset as defined in Section 1221 of the Internal Revenue Code.

20(f) (1) If, within 60 days of the date of the receipt, a trustee
21allocates a receipt to principal in accordance with subdivision (d),
22or allocates a receipt to income because the receipt is not
23determined to be in partial liquidation under subdivision (d), based
24on information received or actually known by the trustee on the
25date that is 30 days after the date of the receipt, the trustee shall
26not be liable for any claim of improper allocation of a receipt which
27is based on information that was not received or actually known
28by the trustee within 30 days of the date of the receipt.

29(2) If a trustee allocates a receipt to principal in accordance with
30subdivision (d), or allocates a receipt to income because the receipt
31is not determined to be in partial liquidation under subdivision (d),
32more than 60 days after the date of receipt, and on the date of
33allocating the receipt the trustee has neither received information
34nor has any actual knowledge, without any duty to investigate, of
35the source of the receipt, then the trustee shall not be liable for any
36claim of improper allocation of the receipt which is based on
37information that was not received or actually known by the trustee
38as of the date of allocation.

end delete
begin insert

39(e) If a trustee allocates a receipt to principal in accordance
40with subdivision (d), or allocates a receipt to income because the
P5    1receipt is not determined to be in partial liquidation under
2subdivision (d), then the trustee shall not be liable for any claim
3of improper allocation of the receipt that is based on information
4that was not received or actually known by the trustee as of the
5date of allocation.

end insert
begin delete

6(g)

end delete

7begin insert (f)end insert (1) Notwithstanding anything to the contrary in subdivision
8(d), if the receipt was allocated between December 2, 2004, and
9 July 18, 2005, a trustee shall not be liable for allocating the receipt
10to income if the amount received by the trustee, when considered
11together with the amount received by all owners, collectively,
12exceeded 20 percent of the entity’s gross assets, but the amount
13received by the trustee did not exceed 20 percent of the entity’s
14gross assets.

15(2) Money is not received in partial liquidation, nor may it be
16taken into account under subdivision (d), to the extent that it does
17not exceed the amount of income tax that a trustee or beneficiary
18is required to pay on taxable income of the entity that distributes
19the money.



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