BILL ANALYSIS Ó
SB 785
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Date of Hearing: June 16, 2015
ASSEMBLY COMMITTEE ON JUDICIARY
Mark Stone, Chair
SB
785 (Morrell) - As Amended April 6, 2015
PROPOSED CONSENT
SENATE VOTE: 36-0
SUBJECT: Estates and trusts: creditor's claim
KEY ISSUE: Should distinctions between a "probate estate" AND A
"Trust Estate" be Made MORE clear in specific sections of the
probate code?
SYNOPSIS
This non-controversial bill defines "probate estate" and "trust
estate" for purposes of a trustee's petition to pay a creditor's
claims and expenses from the assets of a revocable trust.
Existing law provides that when the "probate estate" (i.e. the
portion of a decedent's property subject to probate) is
insufficient to satisfy the claims of creditors, any of the
decedent's assets that are placed in a revocable trust (the
"trust estate") are subject to the claims of the decedent's
creditors. However, according to the sponsor, the existing
statute speaks in terms of the "settlor's estate" or simply
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"estate," without specifying whether the referenced estate is a
"probate estate" or a "trust estate." This bill expressly
defines "probate estate" to mean the property in the estate that
is subject to probate and defines "trust estate" to mean
property transferred to the trustee of the decedent's trust. In
addition, the bill inserts the word "probate" before the word
"estate" in several sections of the Probate Code where the word
"estate" is intended to refer to a "probate estate."
Apparently, for experienced judges and estate planning lawyers,
the context of these statutes already implies that the word
"estate," as used in the amended sections, refers to a probate
estate and not the assets of a revocable living trust. But for
those who may not be as familiar with these statutes, the
express language and definitions added by this bill will make
this meaning clear. The bill is sponsored by the Conference of
California Bar Association and supported by the Judicial Council
of California. There is no known opposition to this bill.
SUMMARY: Defines "probate estate" and "trust estate" and
clarifies that certain references to "estate" in existing law
mean a "probate estate." Specifically, this bill:
1)Defines "probate estate" to mean that part of the decedent's
estate which is subject to probate administration.
2)Defines "trust estate" to mean a decedent's property, real or
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 to specific sections of the Probate
Code by inserting the word "probate" before the word "estate"
where the term is clearly intended to refer to a probate
estate.
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EXISTING LAW:
1)Provides that upon the death of a settlor, any trust property
of the deceased settlor that is subject to the power of
revocation at the time of the settlor's death is subject to
the claims of creditors of the settlor's estate and the
expenses of estate administration if the settlor's estate
inadequately satisfies those claims and expenses. (Probate
Code Section 19001 et seq.)
2)Sets forth the manner and timelines by which the trustee of a
deceased settlor's revovable trust must notify the settlor's
creditors and petition the court for payment of claims, debts,
and expenses from the revocable trust to the creditor's of the
settlor's estate. (Probate Code Section 19001 et seq.)
FISCAL EFFECT: As currently in print this bill is keyed
non-fiscal.
COMMENTS: Sponsored by the Conference of California Bar
Associations, this non-controversial bill defines "probate
estate" and "trust estate" for purposes of a trustee's petition
to pay creditor claims and expenses from the assets of a
revocable trust. Traditionally, when a person dies, the
distribution of his or her estate is administered by a probate
court, with the property of the estate passing to either the
person or persons named in the last will and testament or, in
the absence of a will, in the manner prescribed in the statutes
governing intestate succession. However, any property that the
decedent placed in a trust during his or her lifetime avoids
going through probate and is instead distributed by the trustee
in the manner specified by the trust instrument. If the trust
instrument is a "revocable" trust - that is, one that the
settlor (the person creating the trust) can revoke, alter, or
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amend - then the trust assets are subject to any claims by the
settlor's creditors. A decedent may simultaneously have some
assets that are subject to probate and others (that were placed
in a living trust during the settlor's lifetime) which are not.
Existing law provides that when the "probate estate" (i.e. that
property subject to probate) is insufficient to satisfy the
claims of creditors, assets in any revocable trust (the "trust
estate") are subject to the claims of the creditors of the
decedent's probate estate. However, according to the sponsor,
the Conference of California Bar Associations, the existing
statute speaks in terms of the "deceased settlor's estate" or
simply the "estate" without specifying whether the referenced
estate is a "probate estate" or a "trust estate." This bill
expressly defines "probate estate" to mean the property in the
estate that is subject to probate, and defines "trust estate" to
mean property that is transferred to the trustee of the
decedent's trust. In addition, the bill inserts the word
"probate" before the word "estate" in several sections of the
Probate Code where the word "estate" is clearly intended to
refer to a "probate estate." Apparently, for experienced judges
and estate planning lawyers, the context of these statutes
already implies that the "estate" mentioned in these statutes
refers a probate estate, not a trust estate. But according to
the author and sponsor, the lack of clarity in the existing
statute creates "uncertainty [which] leads to confusion by
creditors, attorneys representing creditors, and some
inexperienced judicial officers." This bill will expressly
identify an "estate" as a "probate estate," where appropriate,
to clarify the meaning of the term for the benefit of any
parties who are less experienced in these matters.
ARGUMENTS IN SUPPORT: According to the Judicial Council of
California, the "lack of clear definitions of key terms in
connection with trust creditor claims has the potential of
creating confusion for litigants and the courts, which can lead
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to unnecessary litigation. SB 785 furthers the trial courts'
ability to resolve trust creditor claims in a timely and
efficient manner by clarifying the law in this area."
REGISTERED SUPPORT / OPPOSITION:
Support
Conference of California Bar Associations (sponsor)
Judicial Council of California
Opposition
None on file
Analysis Prepared by:Thomas Clark / JUD. / (916)
319-2334
SB 785
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