BILL ANALYSIS Ó
SENATE JUDICIARY COMMITTEE
Senator Hannah-Beth Jackson, Chair
2015-2016 Regular Session
AB 1700 (Maienschein)
Version: March 14, 2016
Hearing Date: June 21, 2016
Fiscal: No
Urgency: No
ME
SUBJECT
Trusts: Notice of proposed action by trustee
DESCRIPTION
This bill would eliminate the statutory provision that prevents
a trustee from using a notice of proposed action (an out of
court procedure) for a preliminary and final distribution of
trust assets, effectively allowing the notice of proposed action
to be used for a preliminary and final distribution of trust
assets. This bill would also clarify that the notice of
proposed action process cannot be used by a trustee to discharge
himself or herself and avoid any liability related to the
discharge.
BACKGROUND
The notice of proposed action (NOPA) process allows a trustee to
take certain action without court approval and then limits the
trustee's potential liability with respect to that action if the
NOPA process was followed. The notice of proposed action (NOPA)
process can be used for trustee actions under the Uniform
Principal and Income Act (UPIA). A trustee can also use the
notice of proposed action to exercise the trustee's general
trust powers.
To effectively use the notice of proposed action, the trustee
must give notice of the proposed action (or nonaction) to
beneficiaries who are entitled to receive income under the trust
or to receive distribution of principal, unless the beneficiary
has already consented in writing or cannot be located. The
notice must state a description of the actions to be taken and
the reasons for the action. The notice must also state the time
within which objections to the proposed action can be made,
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which cannot be less than 45 days from the mailing of the notice
of proposed action. A beneficiary may object to the action by
sending a written objection to the trustee within the specified
time period. The trustee may take the action and will not be
liable to a beneficiary for that action if no written objection
is received by the trustee. If a beneficiary objects, either
the trustee or the beneficiary can seek court approval for the
action or a different action.
Certain actions are specifically exempted from the notice of
proposed action process. These actions include allowance for
the trustee's or the trustee's attorney's compensation, sale of
trust property to the trustee or the trustee's attorney, and
settlement of a claim against the trustee. These exemptions
seek to avoid providing immunity from liability to a trustee who
may be self-dealing. Also exempted are preliminary and final
trust distributions and discharges.
This bill would eliminate the statutory provision that prevents
a trustee from using a notice of proposed action for a
preliminary and final distribution of trust assets, effectively
allowing the notice of proposed action to be used for a
preliminary and final distribution of trust assets. This bill
would also clarify that the notice of proposed action process
cannot be used by a trustee to discharge himself or herself and
avoid any liability related to the discharge.
CHANGES TO EXISTING LAW
Existing law provides that, a trustee may give a notice of
proposed action (NOPA) regarding a matter governed by the
Uniform Principal and Income Act and to exercise the trustee's
general trust powers. For the purpose of NOPA, a proposed action
includes a course of action or a decision not to take action.
(Prob. Code Sec. 16500.)
Existing law provides that the trustee who elects to provide the
notice of proposed action shall mail notice of the proposed
action to each of the following:
a beneficiary who is receiving, or is entitled to
receive, income under the trust, including a beneficiary
who is entitled to receive income at the discretion of the
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trustee; and
a beneficiary who would receive a distribution of
principal if the trust were terminated at the time the
notice is given. (Prob. Code Sec. 16501(a).)
Existing law provides that notice of proposed action is not
required to be given to a person who consents in writing to the
proposed action. The consent may be executed at any time before
or after the proposed action is taken. (Prob. Code Sec.
16501(b).)
Existing law provides that a trustee is not required to provide
a copy of the notice of proposed action to a beneficiary who is
known to the trustee but who cannot be located by the trustee
after reasonable diligence or who is unknown to the trustee.
(Prob. Code Sec. 16501(c).)
Existing law provides that the trustee may not use a notice of
proposed action in any of the following actions:
allowance of the trustee's compensation;
allowance of compensation of the attorney for the
trustee;
settlement of accounts;
preliminary and final distributions and discharge;
sale of property of the trust to the trustee or to the
attorney for the trustee;
exchange of property of the trust for property of the
trustee or for property of the attorney for the trustee;
grant of an option to purchase property of the trust to
the trustee or to the attorney for the trustee;
allowance, payment, or compromise of a claim of the
trustee, or the attorney for the trustee, against the
trust;
compromise or settlement of a claim, action, or
proceeding by the trust against the trustee or against the
attorney for the trust; or
extension, renewal, or modification of the terms of a
debt or other obligation of the trustee, or the attorney
for the trustee, owing to or in favor of the trust. (Prob.
Code Sec. 16501(d).)
Existing law provides that the notice of proposed action shall
state that it is given pursuant to this section and shall
include all of the following:
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the name and mailing address of the trustee;
the name and telephone number of a person who may be
contacted for additional information;
a description of the action proposed to be taken and an
explanation of the reasons for the action;
the time within which objections to the proposed action
can be made, which shall be at least 45 days from the
mailing of the notice of proposed action; or
the date on or after which the proposed action may be
taken or is effective. (Prob. Code Sec. 16502.)
Existing law provides that a beneficiary may object to the
proposed action by mailing a written objection to the trustee at
the address stated in the notice of proposed action within the
time period specified in the notice of proposed action. (Prob.
Code Sec. 16503(a).)
Existing law provides that a trustee is not liable to a
beneficiary for an action, as specified, if the trustee does not
receive a written objection to the proposed action from a
beneficiary within the applicable period and the other NOPA
requirements are satisfied. If no beneficiary entitled to notice
objects, the trustee is not liable to any current or future
beneficiary with respect to the proposed action. (Prob. Code
Sec. 16503(b).)
Existing law provides that if the trustee receives a written
objection within the applicable period, either the trustee or a
beneficiary may petition the court to have the proposed action
taken as proposed, taken with modifications, or denied. In the
proceeding, a beneficiary objecting to the proposed action has
the burden of proving that the trustee's proposed action should
not be taken. A beneficiary who has not objected is not estopped
from opposing the proposed action in the proceeding. (Prob. Code
Sec. 16503(c).)
Existing law provides that if the trustee decides not to
implement the proposed action, the trustee shall notify the
beneficiaries of the decision not to take the action and the
reasons for the decision, and the trustee's decision not to
implement the proposed action does not itself give rise to
liability to any current or future beneficiary. A beneficiary
may petition the court to have the action taken, and has the
burden of proving that it should be taken. (Prob. Code Sec.
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16503(d).)
Existing law provides that the NOPA provisions do not require a
trustee to use these procedures prior to taking any action.
(Prob. Code Sec. 16504.)
This bill would eliminate the provision that the trustee could
not use a notice of proposed action for a preliminary and final
distribution of trust assets, effectively allowing the notice of
proposed action to be used for a preliminary and final
distribution of trust assets.
This bill would clarify that the notice of proposed action
process cannot be used by a trustee to discharge himself or
herself and avoid any liability.
COMMENT
1.Stated need for the bill
According to the author:
California Probate Code section 16500 et seq. permits a
trustee, in specified situations, to notify the
beneficiaries of a trust of a proposed course of action
and obtain their prior consent, either directly by a
beneficiary's written consent or implicitly as a result of
a beneficiary's failure to timely object.
Such a "Notice of Proposed Action" (NOPA) procedure is
intended to promote efficient administration of trusts,
encourage open communication between trustees and
beneficiaries, and to provide trustees with a mechanism
for obtaining the beneficiaries' consent (directly or by
implication) prior to undertaking a course of action.
Utilization of the procedure allows a trustee to
confidently undertake a course of action without having to
incur the expense and possible delay associated with a
court hearing on the matter.
The current NOPA procedure for trust administrations
requires a notice period of 45 days, during which a
beneficiary may object to the proposed course of action,
and prohibits the use of the procedure to obtain approval
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of a proposed action that involves a distribution to the
trust beneficiaries.
AB 1700 would modify the NOPA procedure so as to
dramatically increase its usefulness and enhance the
ability of trustees to efficiently administer trusts in
California in a timely and streamlined manner. The
proposed changes in no way diminish the rights and
protections currently afforded beneficiaries. And no
changes are being made to the ability of a beneficiary to
easily object to the proposed action.
AB 1700 would allow the use of the NOPA procedure with
respect to proposed distributions by a trustee by removing
the current restriction for such transactions. As all
trust administrations involve distributions, such a change
would enhance the usefulness of the procedure and improve
efficiency in administration as protective court hearings
could be avoided in most situations, and also facilitate
more frequent distributions.
AB 1700 also clarifies that discharge means the discharge
of a trustee.
2.Arguments in support
According to the Executive Committee of the Trusts & Estates
Section of the State Bar of California, Sponsors:
Under current law, the trust NOPA procedure may not be
used to obtain approval of a proposed action that involves
a distribution to the trust beneficiaries. TEXCOM believes
that an amendment to Probate Code section 16501 that
removes the current prohibition pertaining to
distributions would further achieve the original purpose
of the statute without diminishing a beneficiary's rights
to object or diluting a trustee's fiduciary duties.
The proposed amendment to the statute would dramatically
increase its usefulness and enhance the ability of
trustees to efficiently administer trusts in California.
Under current law, unless the trustee obtains the
affirmative written approval by every beneficiary prior to
a proposed plan of distribution, in order to be ensured
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that no beneficiary can later object to a distribution, a
trustee is required to file a petition with the probate
court seeking approval of a proposed distribution.
Presently, no other method currently exists to reliably
ensure that there are no beneficiary objections prior to
such a distribution absent either obtaining affirmative
consent or a court order. In most cases, no objection to
the petition is received. Thus, such petitions
unnecessarily strain the resources of California's
over-burdened court system.
Although in many trust administrations, receiving the
affirmative consent of all interested parties to a
proposed distribution may be possible, there are
situations in which securing such consents is not cost
effective or practical, such as when the trust has
numerous beneficiaries, or in situations where a
beneficiary has such a minor interest that getting him or
her to respond is problematic.
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In summary, by expanding the scope of the statute to allow
the NOPA procedure to be used for trust distribution
matters, the proposed amendment to the statute would
increase the efficiency of trust administrations, enhance
communication between trustees and beneficiaries, and
reduce the burden on our courts, without diminishing any
rights or protections currently afforded beneficiaries.
3.Promotes efficiencies and continues to protect beneficiaries
from self-dealing trustees
Current law prohibits the trustee from using a notice of
proposed action in any of the following actions:
allowance of the trustee's compensation;
allowance of compensation of the attorney for the
trustee;
settlement of accounts;
preliminary and final distributions and discharge;
sale of property of the trust to the trustee or to the
attorney for the trustee;
exchange of property of the trust for property of the
trustee or for property of the attorney for the trustee;
grant of an option to purchase property of the trust to
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the trustee or to the attorney for the trustee;
allowance, payment, or compromise of a claim of the
trustee, or the attorney for the trustee, against the
trust;
compromise or settlement of a claim, action, or
proceeding by the trust against the trustee or against the
attorney for the trust; or
extension, renewal, or modification of the terms of a
debt or other obligation of the trustee, or the attorney
for the trustee, owing to or in favor of the trust.
All of these prohibitions, except the prohibitions against using
the NOPA for the preliminary and final distributions and
settlement of accounts, seek to prevent trustees that are
engaging in self-dealing from being immunized for their actions
in the event a beneficiary would not object. Having the court
oversee, for example, a trustee's compensation decisions, sale
of trust property to the trustee or attorney for the trustee is
arguably necessary to prevent trustees from bilking
beneficiaries. However, it is arguably appropriate to allow
the trustee to use a more streamlined process, that only gets
the court involved when beneficiaries object, for preliminary
and final distributions. If a trustee was giving
himself/herself a distribution in the preliminary or final
distribution, the NOPA could not be used by a trustee because of
already existing prohibitions. Finally, and as the author
notes, an added benefit to the use of a streamlined process is
saved court resources.
Support : Professional Fiduciary Association of California
(PFAC); Judicial Council of California
Opposition : None Known
HISTORY
Source : The Executive Committee of the Trusts & Estates Section
of the State Bar (TEXCOM)
Related Pending Legislation : None Known
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Prior Legislation :
SB 1021 (Poochigian, Ch. 54, Stats. 2004) allowed the notice of
proposed action provisions to be used for the trustee's general
trust powers subject to exemption and extended the period in
which beneficiary could object from 30 days to 45 days.
AB 846 (Ackerman, Ch. 145, Stats. 1999) enacted the Uniform
Principal and Income Act which contained the notice of proposed
action by trustees.
Prior Vote :
Assembly Floor (Ayes 65, Noes 0)
Assembly Judiciary Committee (Ayes 9, Noes 0)
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