BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | SB 785|
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CONSENT
Bill No: SB 785
Author: Morrell (R)
Amended: 4/6/15
Vote: 21
SENATE JUDICIARY COMMITTEE: 7-0, 5/5/15
AYES: Jackson, Moorlach, Anderson, Hertzberg, Leno, Monning,
Wieckowski
SUBJECT: Estates and trusts: creditors claim
SOURCE: Conference of California Bar Associations
DIGEST: This bill clarifies the definitions of "probate
estate" and "trust estate" for purposes of filing a petition by
a trustee for the payments of claims, debts, and expenses from a
revocable trust of the deceased settlor.
ANALYSIS:
Existing law:
1)Provides that title to a decedent's property, subject to
probate administration and the rights of beneficiaries,
creditors, and other persons as provided by law, passes on the
decedent's death to the person to whom it is devised in the
decedent's last will or, in the absence of such a devise, to
the decedent's heirs as prescribed in the laws governing
intestate succession.
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2)Provides that if the settlor retains the power to revoke the
trust in whole or in part, the trust property is subject to
the claims of creditors of the settlor to the extent of the
power of revocation during the lifetime of the settlor.
3)Provides a process by which a trustee of a deceased settlor's
revocable trust may petition the court for the payment of
claims, debts, and expenses from the revocable trust to a
creditor.
This bill:
1)Clarifies the terms "probate estate" and "trust estate" for
purposes of that petition process.
2)Defines "probate estate" to mean a decedent's estate subject
to administration, as specified, and defines "trust estate" to
mean a decedent's property, real and personal, that is titled
in the name of the trustee of the deceased settlor's trust or
confirmed by order of the court to the trustee of the deceased
settlor's trust.
3)Makes conforming changes in the Probate Code.
Background
As part of a person's estate planning, he or she may create a
trust into which the person transfers specified property.
Trusts are commonly used to avoid probate of the person's estate
upon the person's death and may provide certain tax advantages
relative to the property. There are two types of trust estate
plans; a testamentary trust, which is written into a will and
becomes effective upon death, and a living or inter vivos trust,
which is created by a separate document. There are two types of
inter vivos trusts, revocable and irrevocable. Unlike an
irrevocable trust, a revocable trust allows the person creating
the trust, referred to as the settlor, to instruct the trustee
to pay over all or any portion of the trust property, revoke,
alter, and amend the trust.
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Multiple settlors may create one revocable trust, and married
persons commonly create a joint revocable trust, which allows
the surviving spouse to alter or amend the trust after the other
spouse's death or revoke, or terminate, the trust and distribute
the trust property. A joint revocable trust may contain the
spouses' community property and separate property.
Assets in a revocable trust at the settlor's death are available
to raise cash to pay estate taxes, administration expenses and
debts immediately after death, without waiting for a probate
decree or issuance of preliminary letters. If the trust is
funded prior to death, the property in the trust remains in the
trustee's name before and after the death and is immediately
available for liquidation should the need arise.
After the death of the settlor (or decedent), existing law
authorizes the trustee to handle the claims of creditors against
the property of a revocable trust. These procedures authorize
the trustee to act even though the decedent's estate has not
been administered in probate. Probate administration is a
proceeding through which the court supervises the disbursement
of a decedent's real and personal property. The probate estate
is that part of the decedent's property that is subject to
administration in probate. The trust estate is the portion of
the decedent's property that is titled in the name of the
trustee of the deceased settlor's trust. This bill clarifies
the definitions of and references to "trust estate" and "probate
estate" in relation to a trustee's handling of creditor claims
for which the trust may be liable.
Comments
The author writes:
The provisions of the Probate Code relating to creditor claim
procedures against estates held in trust currently do not
specify where and under what circumstances the terms "deceased
settlor's estate" and "estate of the deceased settlor" refers
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to a decedent's probate estate, and when the reference to
"estate" refers to the decedent's trust estate.
This uncertainty leads to confusion by creditors, attorneys
representing creditors, and some inexperienced judicial
officers - which confusion leads, in turn, to misapplication
of the law, which can result in additional, wasteful
litigation. Providing a clear definition and specifying in the
code what type of estate - probate or trust - is being
referenced will help avoid this misapplication and unnecessary
litigation.
SB 785 would provide a clear definition of "probate estate"
and "trust estate" in Probate Code [Section] 19000, the
definitional section in the Part relating to trust creditor
claims, and updates the subsequent code sections in the Part
to specify which type of estate is meant in each.
Prior Legislation
AB 341 (Spitzer, Chapter 159, Statutes of 2007), among other
things, harmonized separate Probate Code provisions for creditor
claims against a trust and against an estate in probate, such as
provisions for notice to creditors, statutes of limitations for
filing creditors' claims, and allowance for late claims.
AB 2751 (Kaloogian, Chapter 862, Statutes of 1996), among other
things, clarified whether creditor's claims to a trust may be
accrued or not accrued.
SB 727 (Calderon, Chapter 992, Statutes of 1991) enacted
provisions relating to the payment of claims, debts, and
expenses from the revocable trust of a deceased settlor,
specifically with respect to the filing of a petition for
approval and settlement of claims, the publication and provision
of notice to creditors, the filing of claims, the allowance and
rejection of claims, the establishment of claims by money
judgments, the allocation of debts between the trust and the
settlor's surviving spouse, and the liability of the surviving
spouse of the settlor.
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FISCAL EFFECT: Appropriation: No Fiscal
Com.:NoLocal: No
SUPPORT: (Verified5/7/15)
Conference of California Bar Associations (source)
Executive Committee of the Trusts and Estates Section of the
California State Bar
Judicial Council of California
OPPOSITION: (Verified5/7/15)
None received
Prepared by:Tara Welch / JUD. / (916) 651-4113
5/8/15 15:09:25
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