BILL ANALYSIS
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|SENATE RULES COMMITTEE | AB 229|
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THIRD READING
Bill No: AB 229
Author: Charles Calderon (D)
Amended: 1/4/10 in Assembly
Vote: 21
SENATE JUDICIARY COMMITTEE : 5-0, 6/15/10
AYES: Corbett, Harman, Hancock, Leno, Walters
ASSEMBLY FLOOR : 71-0, 1/19/10 (Consent) - See last page
for vote
SUBJECT : Uniform Principal and Income Act: trust
administration:
income payment
SOURCE : California Bankers Association
DIGEST : This bill clarifies that when a separate fund
payer does not provide the value of the internal income of
the separate fund to the trustee and the trustee cannot
otherwise determine the value of the separate fund, the
internal income of the separate fund is deemed to equal the
product of the interest rate and the present value of the
expected future payments.
ANALYSIS : Existing federal law requires a trustee to pay
the taxes on the trust's share of taxable income from
income or principal receipts. (IRC Sec. 2001.)
Existing federal law provides for a marital tax deduction.
CONTINUED
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(IRC Sec. 2056.)
Existing state law governs the distribution of income,
principal, and interest under a trust and the allocation of
distributions to beneficiaries by a trustee or of payments
received by a trust. (Prob. Code Sec. 16320 et seq.)
Existing state law provides that a "separate fund" includes
a private or commercial annuity, an individual retirement
account, and a pension, profit-sharing, stock bonus, or
stock ownership plan. (Prob. Code Sec. 16361(a)(2).)
Existing state law requires a trustee to determine the
"internal income" of each separate fund for the accounting
period, as if the separate fund were a trust subject to the
California UPIA, except as provided, and requires the
trustee to allocate the balance to the principal. (Prob.
Code Sec. 16361(c).)
Existing state law provides for the allocation of a
separate fund payment to a trust qualifying for a marital
deduction. (Prob. Code Sec. 16361(d).)
Existing state law provides a method of determining the
value of the internal income of a separate fund in the
event the separate fund payer does not provide the internal
income value of the separate fund. (Prob. Code Sec. 16361
(g).)
This bill clarifies the existing provisions for determining
the value of a separate fund "payment" that is required to
be allocated to income for purposes of qualifying for a
marital tax deduction under federal tax law.
FISCAL EFFECT : Appropriation: No Fiscal Com.: No
Local: No
SUPPORT : (Verified 6/17/10)
California Bankers Association (source)
ARGUMENTS IN SUPPORT : The author's office writes, "This
bill is intended to correct ambiguity in Probate Code
Section 16361 (PC Section 16361), relating to a
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determination of the "internal income" of a separate fund,
as specified. As currently written, subdivision (g) of PC
Section 16361 prescribes two alternative formulas for
determining the "internal income" of the fund in the
absence of the necessary documentation. The language of
that subdivision specifies the circumstances under which
the first formula - 4% of the fund's value must be used by
the trustee. Specifically, it is required to be used when
the documentation from the fund is not available but the
trustee can determine the value of the fund. However,
subdivision (g) is silent as to when the second formula -
the product of the interest rate and the present value of
the expected future payments - must be utilized.
Subdivision (g) simply states that the second formula must
be used when the fund payer does not provide the
documentation reflecting the internal income of the fund.
To clarify the original intent of AB 1545, this bill
specifies that the second formula should be used when, in
the absence of the documentation, the trustee cannot
determine the value of the separate fund."
The sponsor of this bill, the California Bankers
Association, states that banks often act as trustees for
many trusts. This bill clarifies the method for trustees
to allocate funds received from a separate fund when the
value of the internal income is not provided by the
separate fund payer and the trustee otherwise cannot
determine the value. This clarification is necessary so
that trustees are not later charged with tax liabilities
for choosing the wrong method of determining the internal
income.
ASSEMBLY FLOOR :
AYES: Adams, Ammiano, Anderson, Arambula, Beall, Bill
Berryhill, Tom Berryhill, Blakeslee, Block, Blumenfield,
Bradford, Buchanan, Caballero, Chesbro, Conway, Cook,
Coto, De La Torre, De Leon, DeVore, Emmerson, Eng, Evans,
Feuer, Fletcher, Fong, Fuentes, Fuller, Furutani, Gaines,
Galgiani, Garrick, Gilmore, Hagman, Harkey, Hayashi,
Hernandez, Hill, Huber, Huffman, Jeffries, Jones, Knight,
Lieu, Logue, Ma, Mendoza, Miller, Monning, Nava,
Nestande, Niello, Nielsen, John A. Perez, V. Manuel
Perez, Portantino, Ruskin, Salas, Saldana, Silva,
Skinner, Smyth, Solorio, Audra Strickland, Swanson,
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Torlakson, Torres, Torrico, Tran, Villines, Yamada
NO VOTE RECORDED: Brownley, Charles Calderon, Carter,
Davis, Hall, Bonnie Lowenthal, Bass
RJG:do 6/17/10 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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