BILL ANALYSIS
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UNFINISHED BUSINESS
Bill No: SB 202
Author: Harman (R)
Amended: 8/12/10
Vote: 21
ALL SENATE VOTES NOT RELEVANT
ASSEMBLY FLOOR : 74-0, 8/16/10 - See last page for vote
SUBJECT : Trustees: duties
SOURCE : Trusts and Estates Section of the State Bar
DIGEST : This is a new bill. The provisions of this bill
dealing with the continuing education of private
investigators were deleted in the Assembly.
This non-controversial bill, sponsored by the Trusts and
Estate Section of the State Bar, seeks to reduce disputes
by bringing clarity and certainty to the law describing the
parties' rights and obligations in the area of trustee
accountability. This bill makes 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 beneficiaries are properly protected,
including closing a loophole that may permit evasion of the
required notice of trust administration, providing that
late service of notice is nonetheless effective to trigger
the 120-day statute of limitations to file a trust contest,
and increasing the amount of a trust that a trustee may
terminate without court permission from $20,000 to $40,000.
CONTINUED
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Finally, this bill declares that it is against public
policy for a trust instrument to waive the beneficiary's
right to information and access to records.
ANALYSIS :
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.
This bill clarifies several aspects of trust
administration. Specifically, this bill:
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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.
C. The Attorney General, for a charitable trust, if
either #A or #B, above, is satisfied.
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.
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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.
FISCAL EFFECT : Appropriation: No Fiscal Com.: No
Local: No
SUPPORT : (Verified 8/17/10)
Trusts and Estates Section of the State Bar (source)
ARGUMENTS IN SUPPORT : 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
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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 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. This 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.
ASSEMBLY FLOOR :
AYES: Adams, Ammiano, Anderson, Arambula, Beall, Bill
Berryhill, Tom Berryhill, Block, Blumenfield, Bradford,
Brownley, Buchanan, Caballero, Carter, Chesbro, Conway,
Cook, Coto, De La Torre, De Leon, DeVore, Eng, Evans,
Feuer, Fletcher, Fong, Fuentes, Fuller, Furutani, Gaines,
Galgiani, Garrick, Gatto, Gilmore, Hagman, Hall, Harkey,
Hayashi, Hernandez, Hill, Huber, Huffman, Jeffries,
Jones, Knight, Lieu, Logue, Bonnie Lowenthal, Ma,
Mendoza, Miller, Monning, Nava, Nestande, Niello,
Nielsen, V. Manuel Perez, Portantino, Ruskin, Salas,
Saldana, Silva, Skinner, Smyth, Solorio, Audra
Strickland, Swanson, Torlakson, Torres, Torrico, Tran,
Villines, Yamada, John A. Perez
NO VOTE RECORDED: Bass, Blakeslee, Charles Calderon,
Davis, Norby, Vacancy
RJG:mw 8/17/10 Senate Floor Analyses
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SUPPORT/OPPOSITION: SEE ABOVE
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