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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            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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