BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 2846|
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CONSENT
Bill No: AB 2846
Author: Maienschein (R)
Amended: 5/9/16 in Assembly
Vote: 21
SENATE JUDICIARY COMMITTEE: 7-0, 6/21/16
AYES: Jackson, Moorlach, Anderson, Hertzberg, Leno, Monning,
Wieckowski
ASSEMBLY FLOOR: 78-0, 5/12/16 (Consent) - See last page for
vote
SUBJECT: Powers of appointment
SOURCE: Executive Committee of the Trusts & Estates Section
of the State Bar
of California
DIGEST: This bill clarifies statutory law related to powers of
appointment by replacing the term "donee" with "powerholder" in
the powers of appointment portion of the Probate Code to avoid
confusion; explicitly defining a "power of appointment;"
providing how a power of appointment is created; clarifying the
instances when a power of appointment is subject to claims of
creditors; adopting the selective allocation doctrine as a rule
of construction; and adopting a default rule that allows a
taker-in-default to share fully in unappointed property when the
powerholder makes a partial appointment to the taker-in-default.
ANALYSIS:
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Existing law:
1) Defines the following terms relating to powers of
appointment:
a) "Appointee" as the person in whose favor a power of
appointment is exercised;
b) "Appointive property" as the property or interest in
property that is the subject of the power of appointment;
c) "Creating instrument" as the deed, will, trust, or
other writing or document that creates or reserves the
power of appointment;
d) "Donee" as the person to whom a power of appointment
is given or in whose favor a power of appointment is
reserved; and
e) "Permissible appointee" as a person in whose favor a
power of appointment can be exercised.
2) Provides that a power of appointment can only be created by
a donor having the capacity to transfer the interest in
property to which the power relates.
3) Establishes the Uniform Voidable Transactions Act, which
provides that certain acts to hinder, delay, or defraud any
creditor are voidable.
4) Provides that a power of appointment is a general power of
appointment only to the extent that it is exercisable in
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favor of the donee, the donee's estate, the donee's
creditors, or creditors of the donee's estate, whether or not
it is exercisable in favor of theirs.
5) Provides that a power to consume, invade, or appropriate
property for the benefit of a person in discharge of the
donee's obligation of support that is limited by an
ascertainable standard relating to the person's health,
education, support, or maintenance is not a general power of
appointment.
6) Provides that a power exercisable by the donee only in
conjunction with a person having a substantial interest in
the appointive property that is adverse to the exercise of
the power in favor of the donee, the donee's estate, the
donee's creditors, or creditors of the donee's estate is not
a general power of appointment.
7) Provides that a power of appointment that is not "general"
is special.
8) Provides that a power of appointment may be general as to
some appointive property, or an interest in or a specific
portion of appointive property, and be special as to other
appointive property.
9) Provides that property covered by a special power of
appointment (which means the powerholder cannot give the
property to himself/herself) is not subject to the claims of
creditors of the donee or of the donee's estate or to the
expenses of the administration of the donee's estate.
This bill:
1) Replaces the word "donee" with "donor" and defines a "donor"
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as the person who creates or reserves a power of appointment.
2) Defines "power of appointment" as a power that enables a
powerholder acting in a nonfiduciary capacity to designate a
recipient of an ownership interest in or another power of
appointment over the appointive property.
3) Specifies that "power of appointment" does not include a
power of attorney.
4) Defines "powerholder" as the person to whom a power of
appointment is given or in whose favor a power of appointment
is reserved.
5) Provides that a power of appointment is created only if all
of the following are satisfied:
a) There is a creating instrument;
b) The creating instrument is valid under applicable law;
c) The creating instrument transfers the appointive
property (but this does not apply to the creation of a
power of appointment by the exercise of a power of
appointment); and
d) The terms of the creating instrument manifest the
donor's intent to create in a powerholder a power of
appointment over the appointive property exercisable in
favor of a permissible appointee.
6) Provides that if a powerholder exercises a power of
appointment in a disposition that also disposes of property
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the powerholder owns, the owned property and the appointive
property shall be allocated in the permissible manner in
accordance with the terms of the creating instrument and that
best carries out the powerholder's intent.
7) Provides that unless the terms of the instrument creating or
exercising a power of appointment manifest a contrary intent,
if the powerholder makes a valid partial appointment to a
taker in default of appointment, the taker in default of
appointment may share fully in unappointed property.
8) Replaces the word "donee" with "donor" and defines a "donor"
as the person who creates or reserves a power of appointment.
9) Provides that property covered by a special power of
appointment (which means the powerholder cannot give the
property to himself/herself) is not subject to the claims of
creditors of the powerholder or of the powerholder's estate
or to the expenses of the administration of the powerholder's
estate, except that property subject to the special power of
appointment shall be subject to the claims of creditors of
the powerholder or of the powerholder's estate or the
expenses of administration of the powerholder's estate when:
a) The powerholder owned the property and, reserving the
special power, transferred the property in violation of
the Uniform Voidable Transactions Act (Chapter 1
(commencing with Section 3439) of Title 2 of Part 2 of
Division 4 of the Civil Code); or
b) The initial gift in default of the exercise of the
power is to the powerholder or the powerholder's estate.
10)Provides that property subject to an unexpired general power
of appointment created by the donor in the donor's favor,
whether or not presently exercisable, is subject to the
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claims of the donor's creditors or the donor's estate and to
the expenses of the administration of the donor's estate.
11)Provides that property subject to a general power of
appointment created by the donor in the donor's favor,
whether or not presently exercisable, is subject to the
claims of the donor's creditors or the donor's estate and to
the expenses of the administration of the donor's estate,
except to the extent the donor effectively irrevocably
appointed the property subject to the general power of
appointment in favor of a person other than the donor or the
donor's estate.
Background
Current law provides a statutory body of law relating to powers
of appointment, including the creation and exercise of, and the
revocability of the creation, exercise, or release of, a power
of appointment. A power of appointment is an estate planning
tool that provides an owner of property additional flexibility
in devising his or her estate. A power of appointment is a
traditional feature of property law that permits the owner of
property to name a third party and give that person the power to
direct the distribution of property among some class of
permissible beneficiaries. The power of appointment may also be
structured to provide tax advantages and protections from
creditors. Existing law provides that a power of appointment
can be created only by a donor having the capacity to transfer
the interest in property to which the power relates. Existing
law defines a person to whom a power of appointment is given or
in whose favor a power of appointment is reserved as a "donee."
This bill contains provisions that would make California's power
of appointment laws, codified at Probate Code Section 610, et
seq., more user-friendly. The provisions of this bill are
generally modeled after a few provisions of the Uniform Law
Commission's model Uniform Powers of Appointment Act. The
provisions of this bill clarify California's law on powers of
appointment in order to provide further guidance to estate
planners and families in creating powers of appointment that are
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consistent with the donors' and powerholders' intent and the
rights of creditors. Accordingly, this bill replaces the term
"donee" with "powerholder" in the powers of appointment portion
of the Probate Code to avoid confusion, explicitly defines a
"power of appointment," provides how a power of appointment is
created, and clarifies the instances when a power of appointment
is subject to claims of creditors. This bill also adopts the
selective allocation doctrine as a rule of construction and
adopts a default rule that allows a taker-in-default to share
fully in unappointed property when the powerholder makes a
partial appointment to the taker-in-default.
Comments
The author writes:
A power of appointment is a traditional feature of
property law that permits the owner of property to name a
third party and give that person the power to direct the
distribution of that property among some class of
permissible beneficiaries to add flexibility to the estate
plan. This bill introduces provisions to clarify issues
regarding the creation, exercise, and release of powers of
appointment over trust property in a manner consistent
with common law.
This bill proposes amendments to clarify the scope and
type of powers subject to these rules, provide guidance
regarding operation of powers of appointment consistent
with the donors' and powerholders' intentions, and clarify
the rights of creditors with respect to property subject
to powers of appointment.
Makes existing power of appointment law more user friendly
This bill makes current power of appointment law more
user-friendly. This is accomplished by replacing the term
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"donee" in the power of appointment portion of the Probate Code
with the term "powerholder." The use of the term "donee"
throughout the power of appointment portion of the Probate Code
is unnecessarily confusing because the term "donee" exists
throughout the Probate Code with a definition which conflicts
with the definition of "donee" in the context of the power of
appointment. As explained by the sponsor, this "is confusing,
as the term 'donee' also may refer to donees who receive
property through gifts or bequests, or who receive the
appointive property pursuant to exercise of a power of
appointment by the person who holds that power." It is
appropriate to replace the term "donee" with the term
"powerholder." Notably, the definition of "donee" for this
power of appointment portion of the Probate Code does not
change. However, the more appropriate term of "powerholder" is
used in its stead. Additionally and importantly, the term
"donee" is replaced throughout the power of appointment portion
of the Probate Code (Probate Code Section 600 et seq. (part 14
of Division 2) with the more accurate term of "powerholder" to
describe the person who holds the power of appointment.
The power of appointments portion of the Probate Code is further
enhanced by placing into the power of appointment section of the
Probate Code the definition of "power of appointment" that is
appropriate to this portion of law. Accordingly, it is made
clear that the traditional "power of appointment" for trust law
purposes is distinguished from powers held by fiduciaries, such
as "agents" under powers of attorney. Under this bill, "power
of appointment" would be defined as "a power that enables a
powerholder acting in a nonfiduciary capacity to designate a
recipient of an ownership interest in or another power of
appointment over the appointive property." The statute further
clarifies that "power of appointment" in this portion of the
Probate Code does not include a power of attorney.
This bill also places into statute what criteria need to be
satisfied for a valid power of appointment to be created.
Specifically, all of the following must be satisfied to create a
power of appointment:
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There is a creating instrument;
The creating instrument is valid under applicable law;
The creating instrument transfers the appointive property (but
this does not apply to the creation of a power of appointment
by the exercise of a power of appointment); and
The terms of the creating instrument manifest the donor's
intent to create in a powerholder a power of appointment over
the appointive property exercisable in favor of a permissible
appointee.
FISCAL EFFECT: Appropriation: No Fiscal
Com.:NoLocal: No
SUPPORT: (Verified6/24/16)
Executive Committee of the Trusts & Estates Section of the State
Bar of California (source)
OPPOSITION: (Verified6/24/16)
None received
ASSEMBLY FLOOR: 78-0, 5/12/16
AYES: Achadjian, Alejo, Travis Allen, Arambula, Atkins, Baker,
Bigelow, Bloom, Bonilla, Bonta, Brough, Brown, Calderon,
Campos, Chang, Chau, Chávez, Chiu, Chu, Cooley, Cooper,
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Page 10
Dababneh, Dahle, Daly, Dodd, Eggman, Frazier, Beth Gaines,
Gallagher, Cristina Garcia, Eduardo Garcia, Gatto, Gipson,
Gomez, Gonzalez, Gordon, Gray, Grove, Hadley, Harper, Roger
Hernández, Holden, Irwin, Jones, Kim, Lackey, Levine, Linder,
Lopez, Low, Maienschein, Mathis, Mayes, McCarty, Medina,
Melendez, Mullin, Nazarian, Obernolte, O'Donnell, Olsen,
Patterson, Quirk, Ridley-Thomas, Rodriguez, Salas, Santiago,
Steinorth, Mark Stone, Thurmond, Ting, Wagner, Waldron, Weber,
Wilk, Williams, Wood, Rendon
NO VOTE RECORDED: Burke, Jones-Sawyer
Prepared by:Margie Estrada / JUD. / (916) 651-4113
6/24/16 14:33:54
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