BILL ANALYSIS
SENATE JUDICIARY COMMITTEE
Senator Ellen M. Corbett, Chair
2009-2010 Regular Session
SB 367
Senator Harman
As amended April 13, 2009
Hearing Date: May 5, 2009
Probate Code
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SUBJECT
Trusts
DESCRIPTION
This is a technical bill that clarifies several provisions of
trust law. Specifically, the bill would: (1) reconcile
differences between related sections of the Probate Code; (2)
close a loophole that may permit evasion of the required notice
of trust administration; (3) clarify that late service of notice
is nonetheless effective to trigger the 120 day statute of
limitations to file a trust contest; and (4) clarify provisions
related to a trustee's liability for failure to comply with the
required notice of trust administration and modify related
provisions so that beneficiaries and heirs are treated in the
same manner.
Finally, this bill would declare that it is against public
policy for a trust instrument to waive the beneficiary's right
to information and access to records.
BACKGROUND
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 the fact that it can be drafted in
such a way as to avoid going to probate court altogether, when
the time comes to distribute the estate of a decedent.
Trust law in California is thus evolving. The Trusts and
(more)
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Estates Section of the California State Bar (TEXCOM) regularly
examines the law of trusts to see if any changes have to be made
to improve the legislative scheme, to reconcile inconsistent
provisions, to address conflicting court decisions, and in
general to make the law of trusts more workable for estates,
heirs, beneficiaries, and practitioners. TEXCOM is the sponsor
of SB 367, which contains some very technical amendments to
Probate Code trust provisions.
CHANGES TO EXISTING LAW
Existing law , Division 9 of the Probate Code (Section 15000 et
seq), governs the creation, validation, modification,
termination, and administration of trusts, and provides for the
adjudication of disputes relating to the trust. Existing law
provides for the rights and responsibilities of all parties to a
trust, i.e., the trustor, trustee, beneficiary, heir, and a
third party such as a creditor.
This bill would:
(1) clarify that a beneficiary may request a copy of the "terms
of the trust" when there is a change of trustee (Sec.
16060.7);
(2) clarify that a trustee can and should provide a beneficiary
with specific information the beneficiary has reasonably
requested concerning a trust, rather than being compelled to
provide a standard report containing statutorily specified
information that may be neither relevant nor of interest to
the requesting beneficiary (Sec. 16061);
(3) distinguish 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 (Sec. 16064);
(4) specifically require a trustee to provide a beneficiary an
opportunity to review and copy trust records relevant to the
beneficiary's interest in the trust upon a reasonable request
(Sec. 16065);
(5) clarify that the rights of a beneficiary to receive
information relevant to his or her interest in the trust upon
reasonable request, to obtain a copy of the terms of the
trust, and to review and copy trust records relevant to the
beneficiary's interest in the trust may not be waived by the
settlor in the trust instrument (Secs 16064 and 16068).
The bill would make other clarifying and conforming changes.
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COMMENT
1. Stated need for the bill
TEXCOM, the sponsor of the bill, states that the purpose of SB
367 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 proposal is intended to
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. At the same time, [SB 367] requires
greater accountability from trustees, thereby instilling greater
confidence in beneficiaries, discourgaing actual breaches of
trust by trustees, and reducing needless litigation engendered
by the unnecessary fear and suspicion of beneficiaries that can
result from a lack of communication and information." (Letter
from the Trusts and Estates Section of the State Bar, dated
April 28, 2009.)
2. Trustee's duty to provide copy of "terms of the trust" when
requested
Revocable trusts (inter vivos trusts, or "living trusts", as
they are commonly called) generally remain revocable until the
death of the settlor of the trust. Section 16061.l7 requires a
trustee to serve a notice of trust administration on
beneficiaries, heirs, and the Attorney General (AG) (if the
trust is a charitable trust subject to the supervision of the
AG), upon the occurrence of specified events. Among other
things, the notice must state that the recipient is entitled to
receive a copy of the terms of the trust, upon reasonable
request to the trustee. Section 16061.5 requires the trustee to
provide a copy of the "terms of the trust" to any trust
beneficiary and to any heir of a deceased settlor (i.e., the
creator of the trust) who requests it, upon occurrence of
certain specified events.
"Terms of the trust" is defined in Section 16060.5, and includes
the trust and all amendments to the trust. If the trust had
been "restated," the trustee need only provide a copy of the
restated trust and any subsequent amendments.
This bill would reconcile two inconsistencies between Section
16061.7 and Section 16061.5:
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(1) Section 16061.7(a)(2) provides that the required
notification must be sent when there is a change of trustee of
an irrevocable trust, but Section 16061.5 does not require the
trustee to provide a copy of the terms of the trust when there
is a change in trustee of an irrevocable trust. This
inconsistency, according to proponents, creates uncertainty.
Thus, SB 367 would add language to Section 16061.5 requiring
the trustee to provide a copy of the terms of the trust to any
trust beneficiary who requests it whenever there is a change
of trustee of an irrevocable trust.
(2) Section 16061.7(b)(3) requires the trustee to serve a
notice of trust administration to the Attorney General if the
trust is a charitable trust subject to the supervision of the
AG. But Section 16061.5 does not require the trustee to
provide a copy of the terms of the trust to the AG upon
request, as it does with beneficiaries and heirs. SB 367
would include the AG in that list of persons who may request a
copy of the terms of trust whenever there is a change of
trustee.
3. Closing a loophole to ensure notice of trust administration
where trust was irrevocable upon creation
The death of the settlor makes a trust irrevocable, and triggers
the duty of a trustee to provide notice of trust administration
to the beneficiaries, heirs, and the AG if appropriate.
However, proponents state that the literal terms of the statute
may not require notice upon the death of a settlor who created
an ostensibly irrevocable trust but retained a power of
appointment. Even though the settlor retained the right to
amend the plan of distribution until death in the same manner as
a revocable trust, the notice requirement arguably, according to
proponents, is not triggered because such a trust technically
was irrevocable upon creation, not upon the death of the
settlor. This loophole, they state, could be used to conceal
elder abuse by preventing interested persons from receiving
notice, which would give them the opportunity to challenge the
trust.
SB 367 would close that loophole by providing in Section 16061.7
that notification is required whenever a power of appointment
retained by a settlor is effective or lapses upon the death of
the settlor with respect to an inter vivos trust that was or
purported to be irrevocable upon its creation. The bill also
would devolve this duty of notification by the trustee to the
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successor trustee or trustees, or co-trustees.
4. Contesting a trust within 120 days: late service of notice
would not affect the statute of limitations
Probate Code Section 16061.8 provides that service of notice
starts the running of certain deadlines to file a trust contest,
which must be filed within 120 days of service of notice.
Section 16061.7(f) however requires that notice must be served
within 60 days following the occurrence of the event requiring
the notice (or discovery of the person requiring notice).
Consequently, proponents state, notice that is served late
technically may not constitute notice "pursuant to this
chapter," and the 120-day statute of limitations may never begin
to run
The statute would be clarified by providing that the 120-day
statute of limitations for filing a contest would be triggered
by service of the required notice within or after the time
period specified in Section 16061.7.
5. Trustee's liability for failure to comply with required
notice of trust administration
The amendments to Section 16061.9 proposed by SB 367 relate to
actions brought by beneficiaries or heirs alleging that a
trustee has failed to comply with the section's notification
requirements.
Section 16061.9(a) provides for recovery of attorney's fees by
beneficiaries in this type of action, while subdivision (b),
covering heirs of the settlor/decedent, does not provide for
attorney's fees. SB 367 would equalize treatment of these two
groups vis-?-vis attorney's fees awards.
The bill also would clarify that attorney's fees are recoverable
only if they constitute damages. The language in Section
16061.9 makes the trustee "responsible for damages, attorney's
fees and costs caused by the failure" to comply with the
notification requirements. This bill would clarify that the
trustee would be responsible for "all damages caused by the
failure, including but not limited to, reasonable attorney's
fees and costs incurred by or on behalf of a beneficiary or
heir. This language makes it clear that the attorney's fees
that may be assessed against the trustee would come from a third
party action (an heir suing beneficiaries, for example, for
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trust assets already distributed by the trustee, in a contest
that was initiated too late because of a trustee's failure to
serve notice in a timely manner), and would be characterized as
damages.
Finally, this bill would clarify the trustee's liability for
failure to serve the required notice of trust administration,
which is relieved by the trustee's reasonably diligent effort to
comply. What is a "reasonably diligent effort" is unfortunately
different as between an heir and a beneficiary, because while
the phrase is defined for an heir (mailing to the heir's last
mailing address actually known to the trustee), it is not so for
a beneficiary. Thus SB 367 would define "reasonably diligent
effort" for both beneficiary and heir as "notice by first class
mail to the beneficiary or heir at the
beneficiary's or heir's last mailing address actually known to
the trustee if the notice has not been returned to the trustee
as undelivered mail within 30 business days of mailing." Also,
the bill would deem as reasonably diligent effort a trustee's
retention of an investigative service to locate the beneficiary
or heir, if there is no mailing address for the person, for then
the last mailing address for the person would not be actually
known to the trustee.
Proponents state that these clarifications of what constitutes
reasonably diligent efforts would make the statute more
workable, because the current statute's language requiring a
simple mailing notification to an heir's last known address
would not necessarily constitute the exercise of reasonable
diligence. Thus, under current law, "the existing standard
would appear to absolve trustees from doing anything at all to
find out any more about an heir's whereabouts ?"
6. Improved communications from trustee
While a trustee has a duty to respond to a beneficiary's
reasonable request for information, some trustees are taking the
letter of the law in Section 16061 by providing "a report of
information about the assets, liabilities, receipts, and
disbursements of the trust, the acts of the trustee, and
particulars relating to the administration of the trust relevant
to the beneficiary's interest, including the terms of the trust"
- essentially a formal report that is filed in court, even
though the contents of the report may be entirely nonresponsive
to the beneficiary's request.
This bill would allow a trustee to respond to a beneficiary's
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written reasonable request by providing requested information
and any records relevant to the beneficiary's interest. With
this change, proponents hope that an "atmosphere of trust and
confidence in [the] administration [by the trustee]" would avoid
the expense of preparing formal reports and supplying unwanted
or unresponsive information to the beneficiary. The language of
Section 16061 would be broad enough to allow the trustee to
respond in any form that is reasonable and answers the questions
posed by a beneficiary.
7. Settlor may not waive beneficiary's right to receive copy of
terms of the trust
Current Section 16064 provides that a beneficiary is not
entitled to either reporting of information or to accountings
under the following circumstances: while the trust is revocable
by the settlor or another person, where the settlor has waived
the trustee's duty in the trust instrument, and where the
trustee and beneficiary are the same person. Current law also
provides that the trustee's obligation to send the beneficiaries
a notification of their entitlement to receive a copy of the
terms of the trust may not be waived by the settlor (Section
16061.7(i).)
This bill would add a new section in the Probate Code (Section
16068) to prohibit a settlor from waiving the beneficiary's
right to request the terms of the trust at other times and from
waiving the beneficiary's right to inspect the trust's books and
records. It would also declare such a waiver as against public
policy.
8. When a trustee need not report or provide accountings to
beneficiary
SB 367 would clarify that a trustee is not required to account
to a beneficiary, provide the terms of the trust to a
beneficiary, or to provide requested information and records to
the beneficiary pursuant to Section 16051, in any of the
following circumstances: in the case of a beneficiary of a
revocable trust, for the period when the trust may be revoked,
and where the beneficiary and the trustee are the same person.
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Support : None Known
Opposition : None Known
HISTORY
Source : Trusts and Estates Section of the California State Bar
Related Pending Legislation : None Known
Prior Legislation :
AB 1172 (Kaloogian, Ch. 724, Stats.1997)
AB 2069 (Kaloogian, Ch. 682, Stats. 1998)
AB 460 (Ackerman, Ch. 34, Stats. 2000)
AB 1628 (Kaloogian, Ch. 592, Stats. 2000)
All of these bills amended one or more of the Probate Code
Sections proposed to be amended by SB 367.
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