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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             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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                   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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          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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