BILL ANALYSIS �
AB 997
Page 1
CONCURRENCE IN SENATE AMENDMENTS
AB 997 (Wagner)
As Amended June 28, 2011
Majority vote
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|ASSEMBLY: |70-0 |(May 12, 2011) |SENATE: |37-0 |(August 22, |
| | | | | |2011) |
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Original Committee Reference: JUD.
SUMMARY : Exempts specified nonprofits corporations and
charitable trusts from the definition of professional
fiduciaries under the Professional Fiduciaries Act (PFA).
Specifically, this bill exempts from the definition of a
professional fiduciary under the PFA any nonprofit corporation
or charitable trust, organized under Section 501(c)(3) of the
Internal Revenue Code, including any person acting as an agent
on behalf of that entity who is acting within the course and
scope of employment or agency, that satisfies all of the
following requirements:
1)Is a public charity, as provided by the specified provisions
of the Internal Revenue Code.
2)Has been in existence for at least five years.
3)Has total institutional funds of at least $2 million, as
provided.
4)Is acting as a trustee of a trust incidental to the purposes
for which it is was organized that meets at least one of the
following conditions:
a) A trust from which annual distributions are limited to
income, a sum certain or a fixed percentage of the net fair
market value of the trust assets, as specified;
b) A trust from which annual distributions are limited to a
guaranteed annuity or a fixed percentage of the fair market
value of the property, as specified;
c) A trust from which annual distributions are limited to
income, including a pooled income fund from which annual
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distributions are limited to income, as specified; or,
d) A trust as to which the value of the charitable interest
was presently ascertainable upon creation of the trust and
deductible for tax purposes under the Internal Revenue Code
enactment of the federal Tax Reform Act of 1969.
The Senate amendments were technical.
EXISTING LAW :
1)Provides for the licensing and regulation of professional
fiduciaries by the Professional Fiduciaries Bureau (PFB)
within the Department of Consumer Affairs.
2)Defines "professional fiduciary" as a person who acts as a
conservator, guardian, trustee, personal representative, agent
under a durable power of attorney for health care, or agent
under a durable power of attorney for finances, for two or
more persons at the same time who are not related to the
professional fiduciary by blood, adoption, marriage, or
registered domestic partnership.
3)Exempts from the definition of professional fiduciary banks or
other entities authorized to conduct the business of a trust
company, as well as public conservators, public guardians and
other state agencies. Includes a person or public officer
employed by one of these entities or agencies acting within
the course and scope of that employment. Also excludes
certain broker-dealers and investment advisors, as provided.
4)Provides that no person may hold himself or herself out to the
public as a professional fiduciary unless that person is
licensed as a professional fiduciary in accordance with the
provisions of the PFA. Exempts licensed attorneys, certified
public accountants and agents enrolled to practice before the
Internal Revenue Service.
AS PASSED BY THE ASSEMBLY , this bill was substantially similar
to the version approved by the Senate.
FISCAL EFFECT : According to the Senate Appropriations
Committee, pursuant to Senate Rule 28.8, negligible state costs.
COMMENTS : In 2006, in response to shocking reports of abuse,
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the Legislature passed the Omnibus Conservatorship and
Guardianship Reform Act of 2006, a landmark package of bills to
overhaul California's troubled conservatorship system. That
legislation was designed to remedy alarming deficiencies in
California's conservatorship system that had led to the abuses
of California's elderly and most vulnerable. One piece of the
reform package was AB 1550 (Figueroa), Chapter 491, Statutes of
2006, which established the Professional Fiduciaries Act for the
purpose of licensing and regulating professional conservators,
guardians, trustees, and others, as specified. Public agency
fiduciaries (public guardians and public conservators) and those
employed by banks and trust companies are exempt from this
regulatory scheme, as are attorneys and certified public
accountants.
Under existing law, certain individuals acting as professional
conservators, guardians and trustee are exempted from the PFA.
Banks or other entities authorized to conduct the business of a
trust company as well as public conservators, public guardians
and other state agencies are specifically excluded from the
definition of professional fiduciary. In addition, licensed
attorneys, certified public accountants and agents enrolled to
practice before the Internal Revenue Service are specifically
exempted from the requirement that no person may hold himself or
herself out to the public as a professional fiduciary unless
that person is licensed as a professional fiduciary in
accordance with the provisions of the PFA.
This bill adds specified nonprofit charitable institutions to
the existing list of entities not consider professional
fiduciaries.
Originally conservator, guardians and trustees were required to
register with the Statewide Registry maintained by the
Department of Justice. The registration included a declaration
of the conservator, guardian or trustee which: 1) identified
the person and his or her business location; 2) provided
educational background and professional experience (including
verification of any college or graduate degree claimed); 3)
identified the conservatees or wards or trusts administered; 4)
provided the aggregate value of the estate(s) managed; and, 5)
disclosed any action removing or cause for resignation of the
conservator, guardian, or trustee. (Former Probate Code Section
2850 et seq.) If a person required to register with the
Statewide Registry failed to do so, a court could not appoint
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that person to serve as a conservator, guardian or trustee.
(Former Probate Code Section 2851.)
Certain individuals were exempted from registration with the
Statewide Registry. These included conservators, guardians or
trustees who were related to the conservatee, ward or trustor by
blood, marriage or adoption; trustees who served for the
benefits of not more than three individuals or families; public
employees in the course and scope of their employment; and,
financial institutions. Most of these exemptions carried over
to the PFA. However, the Statewide Registry did not include
exemptions for licensed attorneys, certified public accountants
and agents enrolled to practice before the Internal Revenue
Service, groups now exempted from the PFA. Additionally, there
was no historic exemption for charitable institutions.
In order to help ensure that any charitable exemption cannot
result in financial abuse, the exemption in the bill is narrowly
tailored. The charity must have been in existence for at least
five years and have assets of at least $2 million. In addition,
even if the charity meets the requirements of the statute, only
specified trusts with clear distributions rules are included in
the exemption. This should help ensure that trustors' interests
are protected, even in the absence of application of the PFA.
Supporters, all charitable institutions, write that there is no
need for the PFA to cover them since they are already subject to
very stringent requirements by the Internal Revenue Service and
the Department of Justice. Moreover, they argue the
requirements of the PFA are sufficiently burdensome to make
compliance with the requirements come at the detriment of both
donors and those to be benefitted by the charitable institution.
Writes Stanford University:
For many, many years, Stanford University has
operated a planned giving program in which it
encourages major donors to use split interest trusts
defined in the Internal Revenue Code to allow for
major gifts to the University while retaining income
for the donor of the assets. The University is the
trustee of the trusts and utilizes financial
institutions to manage the investments. The payments
from the trusts are carefully defined to comply with
IRS requirements, so there is virtually no discretion
in the trustee, which is also subject to supervision
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by the Charitable Trusts division of the California
Department of Justice.
This is a case of a well intentioned statute designed
to crack down on unscrupulous fiduciaries having the
unintended consequence of adding to the
administrative burden of responsible charitable
institutions that are otherwise supervised and
regulated. AB 997 simply seeks to correct this
oversight.
Analysis Prepared by : Leora Gershenzon / JUD. / (916)
319-2334
FN: 0001446