BILL NUMBER: AB 460 CHAPTERED 06/09/00 CHAPTER 34 FILED WITH SECRETARY OF STATE JUNE 9, 2000 APPROVED BY GOVERNOR JUNE 9, 2000 PASSED THE ASSEMBLY MAY 30, 2000 PASSED THE SENATE MAY 25, 2000 AMENDED IN SENATE MAY 18, 2000 AMENDED IN SENATE APRIL 25, 2000 AMENDED IN SENATE APRIL 6, 2000 AMENDED IN SENATE MARCH 30, 2000 AMENDED IN ASSEMBLY JANUARY 20, 2000 AMENDED IN ASSEMBLY JANUARY 6, 2000 AMENDED IN ASSEMBLY JANUARY 3, 2000 AMENDED IN ASSEMBLY APRIL 14, 1999 INTRODUCED BY Assembly Member Ackerman FEBRUARY 16, 1999 An act to add Section 53216.8 to the Government Code, and to amend Sections 16060.5, 16061.5, 16061.7, and 16061.8 of, and to add Section 16061.9 to, the Probate Code, relating to trusts. LEGISLATIVE COUNSEL'S DIGEST AB 460, Ackerman. Trusts: trustees and other fiduciaries. (1) Existing law authorizes the legislative body of a local agency to establish a pension trust, as specified. This bill would, in cases where the pension trust permits a participant or beneficiary to direct investments in his or her account, provide that a corporate custodian or a corporate trustee that otherwise provides services to the trust shall not be liable for any loss, or for any breach, which results from the participant's or beneficiary's directions with respect to the assets in his or her account. (2) Existing law defines the phrase "terms of the trust" for purposes of laws regarding the duty of a trustee to keep the beneficiaries of a trust reasonably informed of the trust and its administration to include the written trust instrument of an irrevocable trust or those provisions of a written trust instrument that describe or affect an irrevocable portion of a trust. This bill would revise the definition to state that it means the written trust instrument of an irrevocable trust instrument in effect at the settlor's death that describes or affects that portion of a trust that has become irrevocable at the settlor's death. It also would provide that the phrase includes documents irrevocably exercising a power of appointment, as specified, but does not include superseded trust instruments or amendments. (3) Existing law requires, when a revocable trust or any portion thereof becomes irrevocable for any reason, that the trustee shall provide a copy of the trust or irrevocable portion of it, as specified. This bill would require the trustee to provide the copy, as specified, when the trust becomes irrevocable or a portion of the trust becomes irrevocable because of the death of one or more of the settlors. This bill would also require that the trustee provide the copy, as specified, when the terms of the trust expressly provide that the trust becomes irrevocable within one year of the death of a settlor because of a contingency related to the death of one or more settlors of the trust. (4) Existing law requires a trustee to provide specified information regarding the trust and the trustee to each beneficiary of an irrevocable trust or irrevocable portion of a trust, to each heir of the settlor, and to the Attorney General, as specified. Existing law also provides that a trustee who fails to make a good faith effort to serve the notification by the trustee shall be responsible for all damages including attorneys' fees and costs resulting from the failure. This bill would revise and recast these provisions to, among other things, require that trustees provide specified information to certain beneficiaries and heirs when the terms of the trust expressly provide that the trust becomes irrevocable within one year of the death of a settlor because of a contingency related to the death of one or more settlors of the trust. The bill would further provide that a trustee who fails to give notification, as specified, to a beneficiary shall be responsible for all damages, attorney's fees, and costs caused by the failure unless the trustee has made a reasonably diligent effort to comply with the notification requirements. This bill would also provide that a trustee who fails to give notification, as specified, to an heir who is not a beneficiary and who is known to the trustee shall be responsible for all damages caused to the heir by the failure unless the trustee has made a reasonably diligent effort, as defined, to comply with notification requirements. The bill would further provide that a trustee may consider the fact that the period within which a beneficiary may contest a trust has not expired when exercising discretion in distributing assets. THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS: SECTION 1. Section 53216.8 is added to the Government Code, to read: 53216.8. In the case of a pension trust established pursuant to this article which provides for individual accounts and permits a participant or beneficiary to direct investments in his or her account, if a participant or beneficiary directs investments in his or her account, no person who is a corporate custodian or a corporate trustee that provides services to the pension trust shall be liable for any loss, or by reason of any breach, which results from that participant's or beneficiary's directions with respect to the assets in his or her account. SEC. 2. Section 16060.5 of the Probate Code is amended to read: 16060.5. As used in this article, "terms of the trust" means the written trust instrument of an irrevocable trust or those provisions of a written trust instrument in effect at the settlor's death that describe or affect that portion of a trust that has become irrevocable at the death of the settlor. In addition, "terms of the trust" includes, but is not limited to, signatures, amendments, disclaimers, and any directions or instructions to the trustee that affect the disposition of the trust. "Terms of the trust" does not include documents which were intended to affect disposition only while the trust was revocable. If a trust has been completely restated, "terms of the trust" does not include trust instruments or amendments which are superseded by the last restatement before the settlor's death, but it does include amendments executed after the restatement. "Terms of the trust" also includes any document irrevocably exercising a power of appointment over the trust or over any portion of the trust which has become irrevocable. SEC. 3. Section 16061.5 of the Probate Code is amended to read: 16061.5. (a) When a revocable trust or any portion of a revocable trust becomes irrevocable because of the death of one or more of the settlors of the trust, or because, by the express terms of the trust, the trust becomes irrevocable within one year of the death of a settlor because of a contingency related to the death of one or more of the settlors of the trust, the trustee shall provide a true and complete copy of the terms of the irrevocable trust, or irrevocable portion of the trust, to any beneficiary of the trust who requests it and to any heir of a deceased settlor who requests it. (b) The trustee shall, for purposes of this section, rely upon any final judicial determination of heirship. However, the trustee shall have discretion to make a good faith determination by any reasonable means of the heirs of a deceased settlor in the absence of a final judicial determination of heirship known to the trustee. SEC. 4. Section 16061.7 of the Probate Code is amended to read: 16061.7. (a) A trustee shall serve a notification by the trustee as described in this section in the following events: (1) When a revocable trust or any portion thereof becomes irrevocable because of the death of one or more of the settlors of the trust, or because, by the express terms of the trust, the trust becomes irrevocable within one year of the death of a settlor because of a contingency related to the death of one or more of the settlors of the trust. (2) Whenever there is a change of trustee of an irrevocable trust. The duty to serve the notification by the trustee is the duty of the continuing or successor trustee, and any one cotrustee may serve the notification. (b) The notification by the trustee required by subdivision (a) shall be served on each of the following: (1) Each beneficiary of the irrevocable trust or irrevocable portion of the trust, subject to the limitations of Section 15804. (2) Each heir of the deceased settlor, if the event that requires notification is the death of a settlor or irrevocability within one year of the death of the settlor of the trust by the express terms of the trust because of a contingency related to the death of a settlor. (3) If the trust is a charitable trust subject to the supervision of the Attorney General, to the Attorney General. (c) A trustee shall, for purposes of this section, rely upon any final judicial determination of heirship, known to the trustee, but the trustee shall have discretion to make a good faith determination by any reasonable means of the heirs of a deceased settlor in the absence of a final judicial determination of heirship known to the trustee. (d) The trustee need not provide a copy of the notification by trustee to any beneficiary or heir (1) known to the trustee but who cannot be located by the trustee after reasonable diligence or (2) unknown to the trustee. (e) The notification by trustee shall be served by mail to the last known address, pursuant to Section 1215, or by personal delivery. (f) The notification by trustee shall be served not later than 60 days following the occurrence of the event requiring service of the notification by trustee, or 60 days after the trustee became aware of the existence of a person entitled to receive notification by trustee, if that person was not known to the trustee on the occurrence of the event requiring service of the notification. If there is a vacancy in the office of the trustee on the date of the occurrence of the event requiring service of the notification by trustee, or if that event causes a vacancy, then the 60-day period for service of the notification by trustee commences on the date the new trustee commences to serve as trustee. (g) The notification by trustee shall contain the following information: (1) The identity of the settlor or settlors of the trust and the date of execution of the trust instrument. (2) The name, mailing address and telephone number of each trustee of the trust. (3) The address of the physical location where the principal place of administration of the trust is located, pursuant to Section 17002. (4) Any additional information that may be expressly required by the terms of the trust instrument. (5) A notification that the recipient is entitled, upon reasonable request to the trustee, to receive from the trustee a true and complete copy of the terms of the trust. (h) If the notification by the trustee is served because a revocable trust or any portion of it has become irrevocable because of the death of one or more settlors of the trust, or because, by the express terms of the trust, the trust becomes irrevocable within one year of the death of a settlor because of a contingency related to the death of one or more of the settlors of the trust, the notification by the trustee shall also include a warning, set out in a separate paragraph in not less than 10-point boldface type, or a reasonable equivalent thereof, that states as follows: "You may not bring an action to contest the trust more than 120 days from the date this notification by the trustee is served upon you or 60 days from the date on which a copy of the terms of the trust is mailed or personally delivered to you, whichever is later." (i) Any waiver by a settlor of the requirement of serving the notification by trustee required by this section is against public policy and shall be void. (j) A trustee may serve a notification by trustee in the form required by this section on any person in addition to those on whom the notification by trustee is required to be served. A trustee is not liable to any person for serving or for not serving the notice on any person in addition to those on whom the notice is required to be served. A trustee is not required to serve a notification by trustee if the event that otherwise requires service of the notification by trustee occurs before January 1, 1998. SEC. 5. Section 16061.8 of the Probate Code is amended to read: 16061.8. No person upon whom the notification by the trustee is served pursuant to this chapter may bring an action to contest the trust more than 120 days from the date the notification by the trustee is served upon him or her, or 60 days from the day on which a copy of the terms of the trust is mailed or personally delivered to him or her, whichever is later. SEC. 6. Section 16061.9 is added to the Probate Code, to read: 16061.9. (a) A trustee who fails to serve the notification by trustee as required by Section 16061.7 on a beneficiary shall be responsible for all damages, attorney's fees, and costs caused by the failure unless the trustee makes a reasonably diligent effort to comply with that section. (b) A trustee who fails to serve the notification by trustee as required by Section 16061.7 on an heir who is not a beneficiary and whose identity is known to the trustee shall be responsible for all damages caused to the heir by the failure unless the trustee shows that the trustee made a reasonably diligent effort to comply with that section. For purposes of this subdivision, "reasonably diligent effort" means that the trustee has sent notice by first-class mail to the heir at the heir's last mailing address actually known to the trustee. (c) A trustee, in exercising discretion with respect to the timing and nature of distributions of trust assets, may consider the fact that the period in which a beneficiary or heir could bring an action to contest the trust has not expired.