BILL ANALYSIS
SB 105
Page 1
Date of Hearing: June 29, 2010
ASSEMBLY COMMITTEE ON JUDICIARY
Mike Feuer, Chair
SB 105 (Harman) - As Amended: June 22, 2010
As Proposed to Be Amended
SENATE VOTE : 38-0
SUBJECT: DONATIVE TRANSFERS: CARE CUSTODIANS
KEY ISSUE : IN ORDER TO HELP PROTECT VULNERABLE SENIORS AND
DEPENDENT ADULTS FROM FINANCIAL ABUSE, SHOULD THE EXISTING
PRESUMPTION THAT A DONATIVE GIFT TO A CAREGIVER IS THE RESULT OF
FRAUD OR UNDUE INFLUENCE, UNLESS SPECIFIED CONDITIONS ARE MET,
BE REVISED BASED ON RECOMMENDATIONS FROM THE CALIFORNIA LAW
REVISION COMMISSION?
FISCAL EFFECT : As currently in print this bill is keyed
non-fiscal.
SYNOPSIS
In 1993, in response to an attorney in Southern California who
had drafted wills for elderly clients that included large gifts
to himself, the Legislature established the Donative Transfer
Restriction Statute, which created a statutory presumption that
donative gifts to the drafter of the document are the result of
menace, duress, fraud or undue influence. The presumption was
expanded in 1997 to include gifts from dependent adults to their
care custodians (caregivers). In 2006, the Legislature directed
the California Law Revision Commission (CLRC) to study the
operation and effectiveness of the statutory restrictions on
donative transfers to disqualified individuals, particularly to
caregivers, and report to the Legislature on its findings and
recommendations for revision and improvement of those
provisions. The CLRC, pursuant to its legislative mandate,
issued its report in October 2008, and this bill incorporates
most of its recommendations.
The presumption that donative transfers from dependent adults to
their caregivers are the result of fraud or undue influence,
which can be overcome only by clear and convincing evidence, is
designed to protect vulnerable adults from financial abuse by
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unethical caregivers, while still giving them the freedom to
make donative gifts as they see fit. It is a delicate task to
balance the strong interests in preventing financial abuse and
protecting testamentary freedom. This bill refines the
definitions of dependent adult, care custodian and independent
attorney to better balance those competing interests.
SUMMARY : Revises restrictions on donative transfers from
dependent adults to care custodians. Specifically, this bill :
1)Revises the statutory presumption that a gift by a dependent
adult to his or her care custodian is the result of fraud or
undue influence if executed during the period of care by the
care custodian, or within 90 days of that period. Continues
the clear and convincing rebuttal standard to overcome the
statutory presumption.
2)Revises the definition of "care custodian" to be a person who
provides health or social services, as defined, to a dependent
adult, but does not include a person who provided services
without remuneration, if the person had a personal
relationship with the dependent adult that began: (a) at
least 90 days before providing those services; (b) at least
six months before the dependent adult's death; and (c) if the
dependent adult was admitted to hospice care, before the
dependent adult was admitted to hospice care. Provides that
"remuneration" does not include the gift at issue or
reimbursement of expenses. Limits the scope of "health or
social services" to those services provided to a dependent
adult because of that person's dependent condition.
3)Revises the definition of "dependent adult" to be:
a) For a person 65 years of age or older: (i) the person
was unable to provide properly for his or her personal
needs for physical health, food, clothing, or shelter; or
(ii) due to one or more deficits in mental functions, as
defined, the person had difficulty managing his or her own
financial resources or resisting fraud or undue influence;
or (iii) both (i) and (ii) apply.
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b) For a person age 18-64: (i) the person was unable to
provide properly for his or her personal needs for physical
health, food, clothing, or shelter; or (ii) due to one or
more deficits in mental functions, as defined, the person
had substantial difficulty managing the person's own
financial resources or resisting fraud or undue influence;
or (iii) both (i) and (ii) apply.
4)Requires an independent attorney, who certifies that a
donative gift from a dependent adult to a care custodian is
not the result of fraud or undue influence, to counsel the
dependent adult, outside the presence of any heir or proposed
beneficiary, about the nature and consequences of the intended
transfer, including the effect of the intended transfer on the
transferor's heirs and on any beneficiary of a prior donative
instrument. Revises the definition of "independent attorney"
to be an attorney with no legal, business, financial,
professional or personal relationship with the beneficiary of
the donative transfer at issue and who would not be appointed
as a fiduciary or receive any benefit as a result of the
donative instrument.
5)Increases the value of a small gift that is exempt from the
restrictions on donative transfers from $3,000 to $5,000.
6)Clarifies that the statutory presumption in this bill
supplements the common law and that this is declarative of
existing law. Provides that nothing in this bill precludes an
action to contest a donative transfer under the common law or
under any other applicable law.
EXISTING LAW :
1)Presumptively invalidates any provision or provisions of an
instrument that makes a donative transfer to certain
disqualified beneficiaries as the product of menace, duress,
fraud or undue influence. Disqualified beneficiaries include:
a) The person who drafted the instrument;
b) A relative, domestic partner, cohabitant, or employee of
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the person who drafted the instrument;
c) A partner, shareholder, or employee of a law firm in
which the drafter has an ownership interest;
d) A person who stands in a fiduciary relationship to the
transferor, or any relative, cohabitant, or domestic
partner of the fiduciary; and
e) A care custodian of a dependent adult who is the
transferor, or any relative, cohabitant, or domestic
partner of the care custodian. (Probate Code Sec. 21350.
Unless otherwise indicated all further statutory references
are to the Probate Code.)
2)Provides that the statutory presumption in #1 can be overcome
by clear and convincing evidence, not based solely on the
testimony of the presumptively disqualified beneficiary, that
the transfer was not the product of fraud, menace, duress or
undue influence. (Section 21351.)
3)Exempts from #1, among other gifts, gifts to close relatives
of the transferor and small gifts, defined as gifts valued at
$3,000 or less if the estate is worth $100,000 or more. (Id.)
4)Provides the statutory presumption in #1 does not apply if the
donative instrument is reviewed by an independent attorney who
counsels the transferor about the nature and consequence of
the gift and certifies that the gift is not the product of
menace, duress, fraud or undue influence. (Id.)
COMMENTS : In 1993, in response to an attorney in Southern
California who had drafted wills for elderly clients that
included large gifts to himself, his family and his business
partners, the Legislature established the Donative Transfer
Restriction Statute, which created a statutory presumption that
donative gifts to the drafter of the document are the result of
menace, duress, fraud or undue influence. (AB 21 (Umberg),
Chap. 293, Stats. 1993.) The presumption was expanded in 1997
to include gifts from dependent adults to their care custodians.
(AB 1172 (Kaloogian), Chap. 724, Stats. 1997.) This bill seeks
to revise that presumption.
California Supreme Court Addresses the Issue of Gifts to Friends
Who are Also Caregivers in Bernard v. Foley : In 2006, the
California Supreme Court, in Bernard v. Foley (2006) 39 Cal.4th
794, invalidated a donative gift to alleged friends of a
dependent adult who had become her caregivers towards the end of
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her life. While the Foley majority agreed that the gift
recipients were indeed caregivers who were subject to the
presumption of invalidity and that the caregivers failed to
overcome that presumption, the Chief Justice, in his concurring
opinion, invited the Legislature to make an exception to the
presumption of invalidity for friends:
In my view, it is questionable whether the
uncompensated individual who in a nonoccupational
capacity provides substantial, ongoing health services
to a dependent adult for an extended period and
eventually is made his or her beneficiary, should be
subject to the identical presumptive disqualification
and burden of proof imposed upon an individual who
assumes the role of an unpaid caregiver for a
relatively brief period preceding the dependent
adult's favorable modification of a testamentary
disposition, at a time that is fairly proximate to
death.
As a practical matter, the justification for presuming
an exercise of undue influence is less compelling when
an individual having a preexisting personal
relationship with the dependent adult renders health
care and other services over a relatively lengthy
period of time. (Id. at 818.)
CLRC Study : That same year, the Legislature directed the CLRC
to study the operation and effectiveness of the statutory
restrictions on donative transfers to disqualified individuals
and report to the Legislature on its findings and
recommendations for revision and improvement of those
provisions. (AB 2034 (Spitzer), Chap. 215, Stats. 2006.) The
CLRC, pursuant to its legislative mandate, issued its report in
October 2008, and this bill incorporates most of its
recommendations.
This Bill Creates a Limited Exemption to the Donative Transfer
Restriction Statute for Friends :
There is a long line of cases construing the Donative Transfer
Restriction Statute as heirs of descendants have challenged the
validity of the decedent's gifts to non-heirs. With respect to
care custodians, decisions in several cases revolve around
whether or not the donative transferees were care custodians as
intended by the statute, or mere friends with a preexisting
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relationship with the transferor who ended up providing care in
various forms to the transferor towards the end of the
transferor's life. (See Estate of Kathryn McDowell (2004) 125
Cal.App.4th 659, 673-74; Estate of Dolores Davidson (2003) 113
Cal.App.4th 1035, 1048-50 (both overruled, in part, by Bernard
v. Foley.)
This bill seeks to exclude friends from the definition of care
custodian, but still protect vulnerable adults from those who
might prey upon them. The existing definition of care custodian
includes unpaid friends who provide services as part of a true
friendship with the dependent adult, such as a long-term friend
and neighbor who may start bringing in meals to help his or her
friend. Under this bill, the definition of "care custodian" is
revised to exclude those who provide services without pay as
long as the caregiver has a personal relationship with the
dependent adult that began: (a) at least 90 days before services
were provided; (b) at least six months before the dependent
adult's death; and (c) if the dependent adult was admitted to
hospice care, before the dependent adult was admitted to hospice
care. These exemptions from the unpaid friend exception to the
donative transfer presumption are designed to weed out
unscrupulous individuals who pretend to befriend vulnerable
dependent adults in order to, effectively, steal from them.
This Bill Revises the Definitions of Dependent Adult and Care
Custodian in Order to Balance Fairly the Need to Protect
Vulnerable and Dependent Adults From Financial Abuse and the
Ability of Legally Competent Adults to Make Testamentary Gifts
Freely : The statutory presumption that donative transfers from
dependent adults to their caregivers are the result of fraud or
undue influence, which can be overcome only by clear and
convincing evidence, is designed to protect vulnerable adults
from financial abuse by unethical caregivers, while still giving
them the freedom to make donative gifts as they see fit. It is
a delicate task to balance the strong interests in preventing
financial abuse and protecting testamentary freedom; and this
bill refines the definitions of dependent adult, care custodian
and independent attorney to better balance those interests.
This bill distinguishes between senior dependent adults, who
have a greater likelihood of diminished capacity, based on age,
and other dependent adults and sets the bar for presumptive
invalidity lower for senior dependent adults. Under the bill, a
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person 65 or over will be considered a "dependent adult" for
purposes of the bill if, among other things, due to deficits in
mental functions, he or she has difficulty managing his or her
own financial resources or resisting fraud or undue influence.
If the person is under 65, the standard is higher - he or she
must, due to deficits in mental functions, have substantial
difficulty managing his or her own financial resources or
resisting fraud or undue influence. This disctinction should
help ensure that dependent adults have appropraite testamentary
freedom, while still helping prevent financial abuse.
While the presumption in effect with the revised definitions of
dependent adult and care custodian, may not always, in every
conceivable case, work perfectly, it appears to appropriately
balance the need to protect dependent adults from abuse, while
still allowing competent adults to decide who may get their
assets after death. If the presumption is not appropriate in a
particular case, it may be negated by a review and certification
by an independent attorney, or overcome by clear and convincing
evidence. Alternatively, if the statutory presumption does not
cover a situation that appears to involve financial abuse, the
dependent adult and his or her heirs can still be protected
through use of the common law. The bill clarifies that the
statutory presumption in the bill does not preclude an action to
contest a donative transfer under the common law or under any
other applicable law.
SB 105 appears to strike the appropriate balance between the two
concerns. Overall, the current version of the bill does not
weaken the important current protections provided to elders and
dependent adults. The new Donative Transfer Restriction
Statute, instead, uses a more narrowly tailored approach,
avoiding overbroad application to those who do not need its
protections and whose intentions might be frustrated by
application of the statute. The CLRC gives as examples, a
person making a gift to a long-time friend who provided some
care at the end, or a young paraplegic, with no cognitive
impairment, who makes a gift to a caregiver.
As With Current Law, Presumption May be Overcome by Clear and
Convincing Evidence; Duress and Menace Removed from Statute :
Under existing law, the invalidity of a transfer provision to a
disqualified person does not apply if a court determines, upon
clear and convincing evidence, not based solely on the testimony
of the disqualified person, that the transfer was not the
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product of fraud, duress, menace, or undue influence. If the
court finds that the transfer was indeed the product of fraud,
duress, menace, or undue influence, the disqualified person
bears all costs of the proceeding, including attorney's fees.
This bill continues the clear and convincing rebuttal standard
and does not lower the standard to a preponderance of the
evidence standard, as had been suggested by CLRC. This
heightened standard is important to protect vulnerable seniors
and dependent adults and their heirs and beneficiaries from
financial abuse.
The bill also removes the duress and menace circumstances from
the statute. According to the CLRC, the presumption of
invalidity should be limited to fraud and undue influence only,
and explains the change this way: "Menace and duress are terms
of art that describe extreme forms of coercion, often rising to
the level of criminal misconduct. The [CLRC] does not believe
that the statutory presumption should encompass menace and
duress. The fact that a beneficiary of a gift drafted or
transcribed the instrument, or served as the care custodian of
the transferor, does not justify a presumption that the gift was
procured through the extreme forms of misconduct that constitute
menace and duress."
Bill Allows the Same Attorney to Draft the Instrument and
Certify That the Gift to a Care Custodian is Not the Product of
Fraud or Undue Influence : SB 105 continues the exemption from
existing law that negates the presumption of invalidity of a
gift to a care custodian if an independent attorney certifies
that he or she has reviewed the instrument, counseled the
transferor about the nature and consequences of the gift, and
that the gift was not the product of fraud or undue influence,
with two key changes.
First, the bill expands the counseling requirement so that the
attorney must counsel the dependent adult, outside the presence
of any heir or proposed beneficiary, about the nature and
consequences of the intended transfer, including the effect of
the intended transfer on the transferor's heirs and on any
beneficiary of a prior donative instrument.
Second, this bill permits the attorney who drafted the
instrument to also certify that a gift to a care custodian is
not the product of fraud or undue influence, provided the
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attorney meets the definition of an "independent attorney" with
the requisite degree of disassociation from the beneficiary.
This change, according to the CLRC, should help transferors
complete such gifts, without the need for the services of two
different attorneys. "The attorney who drafts an instrument for
a client is in a good position to counsel and evaluate the
client and determine whether the gift is improper."
Technical Amendments : The author has requested several
technical, non-substantive amendments be made to the bill.
These amendments are strictly technical and correct errors in
drafting. They are:
On page 10, line 39, strike out "for"
On page 13, like 8, strike out "(4)" and insert: (3)
On page 13, like 11, strike out "(4)" and insert: (3)
REGISTERED SUPPORT / OPPOSITION :
Support (to 6/22/10 version of the bill)
None on file
Opposition (to 6/22/10 version of the bill)
None on file
Analysis Prepared by : Leora Gershenzon / JUD. / (916)
319-2334