Amended in Senate April 25, 2016

Senate Bill No. 1158

Introduced by Senator Anderson

February 18, 2016

An act to amend Sections begin delete 15403, 15404, and 15406 end delete begin insert 15403 and 15404 end insert of the Probate Code, relating to trusts.

LEGISLATIVE COUNSEL’S DIGEST

SB 1158, as amended, Anderson. Trusts: modification or termination.

Existing law authorizes the beneficiaries of an irrevocable trust, upon the consent of all beneficiaries, to compel the modification or termination of the trust upon petition to the court. Existing law prohibits the modification or termination of an irrevocable trust if the continuance of the trust is necessary to carry out a material purpose of the trust, unless the court determines that modification or termination under the circumstances outweighs the interest in accomplishing a material purpose of the trust. Notwithstanding that provision, existing law prohibits the court from terminating a trust that is subject to a valid restraint on the transfer of a beneficiary’s interest.

This bill would revise and recast these provisions to instead begin delete authorize, upon the consent of all beneficiaries, the modification or termination of an irrevocable trust as agreed to by the beneficiaries upon petition to the court. The bill would instead authorize the court, in determining whether modification or termination would defeat a material purpose of the trust, to take into consideration any factors deemed relevant to the court, including end delete begin insert require the court, in making the determination described above with respect to a proposed termination of an irrevocable trust, to consider end insert whether the trust is subject to a valid restraint on the transfer of a beneficiary’s interest. The bill would delete the provision that the court is prohibited from terminating an irrevocable trust that is subject to a valid restraint on the transfer of a beneficiary’s interest. begin insert The bill would also make clarifying changes. end insert

Existing law authorizes the settlor and the beneficiaries of a trust, upon the consent of the settlor and all beneficiaries, to compel the modification or termination of the trust.

This bill would revise and recast those provisions and instead authorize the trust to be modified or terminated by the written consent of the settlor and all beneficiaries without court approval of the modification or termination.

begin delete

Existing law provides that the presumption of fertility is rebuttable in determining the class of beneficiaries whose consent is necessary to modify or terminate a trust pursuant to the above-described provisions.

end delete begin delete

This bill would additionally authorize the court to limit the beneficiaries whose consent is required under those provisions to beneficiaries whose interests would be substantially impaired by the modification or termination, as specified.

end delete

Vote: majority. Appropriation: no. Fiscal committee: no. State-mandated local program: no.

The people of the State of California do enact as follows:

SECTION 1.  

Section 15403 of the Probate Code is amended
to read:

15403.  

(a) Except as provided in subdivision (b), if all
beneficiaries of an irrevocable trust begin delete consent to a modification or
termination of the trust, the trust shall be modified or terminated
by the court as agreed to by the beneficiaries upon petition to the
court. end delete begin insert consent, they may petition the court for modification or
termination of the trust. end insert

begin delete

(b) The court shall grant a petition for modification or
termination made pursuant to subdivision (a) unless the court
determines the modification or termination would defeat a material
purpose of the trust, after considering, in addition to any other
factors deemed relevant to the court, whether the trust is subject
to a valid restraint on the transfer of a beneficiary’s interest as
provided in Chapter 2 (commencing with Section 15300). The
court is not precluded from modifying or terminating the trust
solely because of such a restraint on the transfer.

end delete begin insert

(b) If the continuance of the trust is necessary to carry out a
material purpose of the trust, the trust cannot be modified or
terminated unless the court, in its discretion, determines that the
reason for doing so under the circumstances outweighs the interest
in accomplishing a material purpose of the trust. In making that
determination with respect to a proposed termination of an
irrevocable trust, the court shall consider whether the trust is
subject to a valid restraint on the transfer of a beneficiary’s interest
as provided in Chapter 2 (commencing with Section 15300).

end insert begin insert

(c) If the trust provides for the disposition of principal to a class
of persons described only as “heirs” or “next of kin” of the settlor,
or using other words that describe the class of all persons who
would take under the rules of intestacy, the court may limit the
class of beneficiaries whose consent is necessary to modify or
terminate a trust to the beneficiaries who are reasonably likely to
take under the circumstances.

end insert

SEC. 2.  

Section 15404 of the Probate Code is amended to read:

15404.  

(a) A trust may be modified or terminated by the
written consent of the settlor and all beneficiaries without court
approval of the modification or termination.

(b) If any beneficiary does not consent to the modification or
termination of the trust, begin insert the court may modify or partially terminate
the trust end insert upon petition to the begin delete court, end delete begin insert court by end insert the other beneficiaries,
with the consent of the settlor, begin delete may compel a modification or a
partial termination of the trust end delete if the interests of the beneficiaries
who do not consent are not substantially impaired.

(c) If the trust provides for the disposition of principal to a class
of persons described only as “heirs” or “next of kin” of the settlor,
or using other words that describe the class of all persons who
would take under the rules of intestacy, the court may limit the
class of beneficiaries whose consent is begin delete needed to compel the
modification or termination of the end delete begin insert necessary to modify or terminate
a end insert trust to the beneficiaries who are reasonably likely to take under
the circumstances.

begin delete

SEC. 3.  

Section 15406 of the Probate Code is amended to read:

15406.  

In determining the class of beneficiaries whose consent
is necessary to modify or terminate a trust pursuant to Section
15403 or 15404, both of the following shall apply:

(a) The presumption of fertility is rebuttable.

(b) The court in its discretion may limit the beneficiaries whose
consent is required to beneficiaries whose interests would be
substantially impaired by the modification or termination. For
purposes of this subdivision, the court may consider the likelihood
of a beneficiary taking under the trust.

end delete