BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 1700|
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CONSENT
Bill No: AB 1700
Author: Maienschein (R)
Amended: 3/14/16 in Assembly
Vote: 21
SENATE JUDICIARY COMMITTEE: 7-0, 6/21/16
AYES: Jackson, Moorlach, Anderson, Hertzberg, Leno, Monning,
Wieckowski
ASSEMBLY FLOOR: 65-0, 3/17/16 (Consent) - See last page for
vote
SUBJECT: Trusts: Notice of proposed action by trustee
SOURCE: The Executive Committee of the Trusts & Estates
Section of the State Bar
DIGEST: This bill eliminates 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 clarifies 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.
ANALYSIS:
Existing law:
1) 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
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Page 2
action includes a course of action or a decision not to take
action.
2) Provides that the trustee who elects to provide the NOPA
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
trustee; and
a beneficiary who would receive a distribution of
principal if the trust were terminated at the time the
notice is given.
1) Provides that NOPA 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.
2) Provides that a trustee is not required to provide a copy of
the NOPA 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.
3) Provides that the trustee may not use a NOPA 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;
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Page 3
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.
1) Provides that the NOPA shall state that it is given pursuant
to this section and shall include all of the following:
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 NOPA; or
the date on or after which the proposed action may be
taken or is effective.
1) Provides that a beneficiary may object to the proposed
action by mailing a written objection to the trustee at the
address stated in the NOPA within the time period specified
in the NOPA.
2) 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.
3) 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
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action in the proceeding.
4) 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.
5) Provides that the NOPA provisions do not require a trustee
to use these procedures prior to taking any action.
This bill:
1) Eliminates the provision that the trustee could not use a
NOPA for a preliminary and final distribution of trust
assets, effectively allowing the NOPA to be used for a
preliminary and final distribution of trust assets.
2) Clarifies that the NOPA process cannot be used by a trustee
to discharge himself or herself and avoid any liability.
Background
The 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 NOPA process can be used for trustee actions under the
Uniform Principal and Income Act (UPIA). A trustee can also use
the NOPA to exercise the trustee's general trust powers.
To effectively use the NOPA, 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, which cannot be
less than 45 days from the mailing of the NOPA. A beneficiary
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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 NOPA 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 eliminates the statutory provision that prevents a
trustee from using a NOPA for a preliminary and final
distribution of trust assets, effectively allowing the NOPA to
be used for a preliminary and final distribution of trust
assets. This bill also clarifies that the NOPA process cannot
be used by a trustee to discharge himself or herself and avoid
any liability related to the discharge.
Comments
The author writes:
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
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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
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.
FISCAL EFFECT: Appropriation: No Fiscal
Com.:NoLocal: No
SUPPORT: (Verified6/24/16)
The Executive Committee of the Trusts & Estates Section of the
State Bar (source)
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Page 7
Professional Fiduciary Association of California
Judicial Council of California
OPPOSITION: (Verified6/24/16)
None received
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
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
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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.
[?]
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.
ASSEMBLY FLOOR: 65-0, 3/17/16
AYES: Achadjian, Alejo, Travis Allen, Baker, Bonilla, Brough,
Brown, Burke, Calderon, Campos, Chang, Chau, Chávez, Chu,
Cooley, Dahle, Daly, Dodd, Eggman, Frazier, Beth Gaines,
Gallagher, Cristina Garcia, Eduardo Garcia, Gatto, Gipson,
Gonzalez, Gordon, Gray, Grove, Hadley, Harper, Roger
Hernández, Irwin, Jones, Jones-Sawyer, Kim, Lackey, Levine,
Linder, Lopez, Maienschein, Mathis, Mayes, McCarty, Melendez,
Mullin, Nazarian, Obernolte, Olsen, Patterson, Quirk,
Ridley-Thomas, Rodriguez, Santiago, Steinorth, Mark Stone,
Thurmond, Ting, Wagner, Waldron, Weber, Wilk, Williams, Rendon
NO VOTE RECORDED: Atkins, Bigelow, Bloom, Bonta, Chiu, Cooper,
Dababneh, Gomez, Holden, Low, Medina, O'Donnell, Salas, Wood
Prepared by:Margie Estrada / JUD. / (916) 651-4113, Tara Welch
/ JUD. / (916) 651-4113 6/24/16 15:36:50
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