BILL ANALYSIS
SB 202
Page 1
SENATE THIRD READING
SB 202 (Harman)
As Amended August 12, 2010
Majority vote
SENATE VOTE :Vote not relevant
BUSINESS & PROFESSIONS APPROPRIATIONS
(vote not relevant) (vote not relevant)
JUDICIARY 10-0
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|Ayes:|Feuer, Tran, Brownley, | | |
| |Evans, Hagman, Huffman, | | |
| |Jones, Knight, Monning, | | |
| |Saldana | | |
|-----+--------------------------+-----+--------------------------|
| | | | |
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SUMMARY : Clarifies several aspects of trust administration.
Specifically, this bill :
1)Allows a trustee to terminate a trust, without court approval,
if the value of the trust does not exceed $40,000.
2)Requires a trustee, on request, to provide a beneficiary with
the terms of the trust, unless the trustee is specifically not
required to do so.
3)Clarifies that a trustee, upon reasonable request by a
beneficiary, must provide the beneficiary with specific
information relating to the administration of the trust
relevant to the beneficiary's interest.
4)Requires a trustee to provide a copy of an irrevocable trust,
or the irrevocable portions of the trust to:
a) The beneficiary of the trust, as specified, including
upon the death of a settlor who established an irrevocable
trust with power of appointment;
b) A beneficiary when there is a change of trustee; or,
c) The Attorney General, for a charitable trust, if either
a) or b), above, is satisfied.
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5)Except for charitable remainder trusts, as define, requires
the trustee to serve notice on beneficiaries and heirs when
the settlor has retained a power of appointment to appoint
beneficiaries and that power, upon the death of the settlor,
is effective or lapses.
6)Clarifies that service of required trust notification, even if
late, will commence the 120-day period for contesting a trust.
7)Distinguishes those situations in which a trustee is obligated
to provide a formal accounting from those where the trustee is
required to report only information requested by a
beneficiary.
8)Prevents a settlor from waiving the trustee's duty to report
trust information to beneficiaries.
9)If a beneficiary has waived the right to a trust accounting,
allows the waiver to be withdrawn for transactions occurring
after the date of the written withdrawal of the waiver.
Regardless of whether the beneficiary has waived accountings,
allows a court, upon a showing that it is reasonably likely
that a material breach of trust has occurred, to compel the
trustee to account.
10) Clarifies that a beneficiary may petition the court to
require a trustee to provide the beneficiary with the terms of
the trust.
11) Clarifies that any waiver by a settlor of the trustee's
obligation to provide the terms of the trust or specified
information to a beneficiary is void as against public policy.
12) Clarifies that, in determining priority for payment of the
unitrust amount (the amount of annual distribution paid out
under a unitrust), capital gains are not included in net
taxable income.
13)Allows the court, on its own motion, to give notice of an
order to show cause why a trustee, who is a professional
fiduciary and who is required to be licensed, should not be
removed for failing to be so licensed.
14) Makes other clarifying and conforming changes.
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EXISTING LAW :
1)Governs the creation, validation, modification, termination,
and administration of trusts, and provides for the
adjudication of disputes relating to the trust. Provides for
the rights and responsibilities of all parties to a trust,
i.e., the settlor (i.e., the creator of the trust), trustee,
beneficiary, heir, and a third party, such as a creditor.
2)Allows a trustee to terminate a trust, without court approval,
if the value of the trust does not exceed $20,000.
3)Requires the trustee, when a revocable trust becomes
irrevocable, to provide a copy of the terms of the trust to
any heir or beneficiary upon request.
4)Requires a trustee to provide notification to beneficiaries
and heirs as specified.
5)Provides that an action to contest a trust may not be brought
more than 120 days from the date that the trustee serves
notification or 60 days from the date a copy of the trust is
mailed or delivered, whichever is longer.
6)Provides that either a beneficiary or a settlor may waive the
right to a trust accounting, except as specified.
7)Provides that the unitrust amount is to be paid first from net
taxable income, then from short-term capital gains, then
long-term capital gains, then other income and finally from
the principal of the trust.
FISCAL EFFECT : None
COMMENTS : Increasingly, revocable trusts are replacing wills as
the primary vehicle by which people transfer property at death.
The principal advantage of the revocable trust, made irrevocable
by the death of the settlor or upon the happening of an event
specified in the trust, is that it can be drafted in such a way
as to avoid probate court altogether when the time comes to
distribute the estate of a decedent. This non-controversial
bill, sponsored by the Trusts and Estates Section of the State
Bar (Section), seeks to make a number of relatively minor
changes to trust administration to make the law of trusts more
workable for trustees and to help ensure that the interests of
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beneficiaries and heirs are properly protected.
According to the Section, the purpose of the bill is to reduce
disputes by bringing clarity and certainty to the law describing
the parties' rights and obligations in the area of trustee
accountability. The Section believes that this bill will reduce
the expense of trust administration by encouraging informal,
targeted and responsive replies to requests from beneficiaries
rather than superfluous or burdensome formal reporting
requirements. The bill, which requires greater accountability
from trustees, should, the Section believes, instill greater
confidence in beneficiaries, discourage actual breaches of trust
by trustees, and reduce needless litigation engendered by a lack
of communication and information.
Analysis Prepared by : Leora Gershenzon / JUD. / (916)
319-2334
FN: 0005819