BILL ANALYSIS �
AB 1683
Page 1
Date of Hearing: March 20, 2012
ASSEMBLY COMMITTEE ON JUDICIARY
Mike Feuer, Chair
AB 1683 (Hagman) - As Amended: March 13, 2012
PROPOSED CONSENT (As Proposed to be Amended)
SUBJECT : TRUSTS: POWER OF REVOCATION
KEY ISSUE : SHOULD A PERSON WITH THE RIGHT TO REVOKE A TRUST BE
ABLE TO DO SO EVEN AFTER THE SETTLOR OF THE TRUST HAS DIED?
FISCAL EFFECT : As currently in print this bill is keyed
non-fiscal.
SYNOPSIS
This non-controversial bill, sponsored by the Trusts & Estates
Section of the State Bar, seeks to clarify who may revoke a
trust and when, and what happens to the trust property after a
revocation. In support of the bill, the author writes that this
bill removes the uncertainty that resulted based on court
interpretations of the relevant code sections "while providing
much needed protection of surviving spouses' (and other joint
settlors') property rights as declared in the trust." There is
no known opposition to this bill.
SUMMARY : Allows a trust to be revoked after the settlor's
death. Specifically, this bill :
1)Provides that a revocable trust may be revoked by the settlor
or a person holding the power of revocation delivered to the
trustee during the lifetime of either the settlor or the
person with the power of revocation.
2)Provides that if a trust is revocable by the settlor, the
trust property shall be disposed of in the following order of
priority: (a) As directed by the settlor; (b) as provided in
the trust document; or (c) if there is no direction by the
settlor or the trust, to the settlor or his or her estate.
3)Provides that if a trust is revocable by someone other than
the settlor, the trust property shall be disposed of in the
following order of priority: (a) As provided in the trust
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document; (b) as directed by the person exercising the power
of revocation; or (c) if there is no direction in the trust or
by the person exercising the right of revocation, to that
person or his or her estate.
EXISTING LAW :
1)Provides that unless a trust is expressly made irrevocable by
the trust instrument, a trust may be revoked, as specified.
(Probate Code Section 15400. Unless stated otherwise, all
further statutory references are to that code.)
2)Permits a revocable trust to be revoked, in whole or in part,
by the settlor in compliance with the terms of the trust, or
in a writing signed by the settlor and delivered to the
trustee during the settlor's lifetime. (Section 15401(a).)
3)Provides that if a trust is revoked by the settlor, the trust
property shall be disposed of as directed by the settlor.
(Section 15410.)
4)Provides that if a trust is created by more than one settlor,
each settlor may only revoke the portion of the trust
contributed by that settlor, unless otherwise stated in the
trust. (Section 15401(b).)
5)Notwithstanding #4, unless the trust expressly provides
otherwise, community property that is transferred to a
revocable trust remains community property during the
marriage. A power to revoke with respect to the community
property may be exercised by either spouse alone, unless the
trust states otherwise. (Family Code Section 761.)
COMMENTS : This non-controversial bill, sponsored by the Trusts
& Estates Section of the State Bar, seeks to clarify who may
revoke a trust and when, and what happens to the trust property
after a revocation. In support of the bill, the author writes
that this bill remove the uncertainty that resulted based on
court interpretations of the relevant code sections "while
providing much needed protection of surviving spouses' (and
other joint settlors') property rights as declared in the
trust."
Joint Trust : Married couples often make use of joint trusts for
estate planning purposes. The joint settlors, who do not have
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to be married, combine their estates into a single trust. These
trusts are generally revocable until the death of the first
settlor. At that point, the trust document usually makes clear
which parts are now irrevocable and which parts are still
revocable. Married couples with children, no previous marriages
and generally smaller estates typically allow the surviving
spouse to revoke any or all of the trust. Where the settlors
have children from previous relationships and perhaps more
assets, the trust document may limit the surviving settlor's
right to revoke all or part of the trust. As is generally the
case with trusts, the trust instrument controls when and how the
estate is distributed.
Key Case Has Created Some Uncertainty : In Estate of Powell
(2000) 83 Cal.App.4th 1434 and several subsequent cases, courts
have limited the right to revoke a joint trust after the death
of the first settlor. In that case, a married couple
established a revocable trust with their joint assets, including
community property. The trust provided that, upon the death of
the first settlor, the survivor would be the sole beneficiary as
to all trust income and upon the death of the survivor, the
trust estate was to be distributed to the son. The trust
permitted revocation during the lifetime of either settlor. The
wife died, survived by her husband and a son from a previous
marriage. After the wife's death, her husband attempted to
revoke the trust with respect to all the community property.
The court of appeals, however, found that upon the wife's death,
the community property transmuted to separate property, half
belonging to the husband and half belonging to the wife. As a
result, despite the clear language of the trust, which gave both
settlors the right of revocation of the trust during the
lifetime of either settlor, the husband could only revoke the
trust as to his half of the community property - his separate
property. He no longer had any ability to revoke the trust as
to his wife's share of the community property.
Unpublished cases post-Powell have followed that holding,
finding that a surviving spouse/settlor's revocation of a trust
is effective as to only the surviving spouse's share of the
community property, not the deceased spouse's share. (See,
e.g., Miller v. Miller (2004) Cal. App. Unpub. LEXIS 10473;
Estate of Morra (2008) Cal. App. Unpub. LEXIS 1272.)
This Bill Allows Surviving Settlors to Revoke the Entire Trust :
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This bill provides that a revocable trust may be revoked by the
settlor or any person holding the power of revocation if the
revocation is delivered to the trustee during the lifetime of
either the settlor or the person with the power of revocation.
Thus in Powell, the husband would have been able to revoke the
entire trust and keep his deceased wife's son from inheriting
anything, as had been allowed by the terms of the trust.
Distribution of Trust Property After Revocation : The bill also
explicitly sets forth the rules as to the distribution of trust
property after a trust has been revoked in whole or in part. If
the settlor revokes the trust, the property is distributed, in
order of priority: 1) As directed by the settlor; 2) as
provided in the trust; or 3) if there is no direction by the
settlor or the trust, to the settlor or his or her estate. If,
however, someone other than the settlor revokes the trust, the
property is distributed in the following order of priority: 1)
As provided in the trust; 2) as directed by the person
exercising the power of revocation; or 3) if there is no
direction in the trust or by the person exercising the right of
revocation, to that person or his or her estate.
These provisions help ensure that first and foremost the
settlor's wishes are honored. If, however, it is unclear what
the settlor's wishes are, because the trust is unclear or
because the person exercising the power of revocation is not the
settlor and has not stated how to dispose of the property, this
bill provides that the property goes to the person with power of
revocation. While it may seem more appropriate to dispose of
the property as the settlor desires, the sponsor argues that by
giving a person a power of revocation, the settlor has already
essentially given that person the power of ownership over the
property. Moreover, the IRS treats the holder of the power as
the owner for tax purposes. Thus, if neither the settlor's nor
the person with right of revocation's desires are clear, the
property, in that instance, would go to the person with right of
revocation. Again, this is the rule only if the settlor has
given a right of revocation, but neither the settlor nor the
person with the right of revocation has stated - whether as part
of the trust or the revocation - what happens to the property in
the event of such a revocation.
Technical Amendment : In order to better clarify the language of
the section, the author agrees to amend the bill as follows, on
page 3, lines 1-2:
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(2) Notwithstanding Paragraph (1), including the reference to
Section 761 of the Family Code, shall not prevent a settlor may
grant from granting to another person,
REGISTERED SUPPORT / OPPOSITION :
Support
Trust & Estate Section of the State Bar (sponsor)
Opposition
None on file
Analysis Prepared by : Leora Gershenzon / JUD. / (916) 319-2334