BILL ANALYSIS �
SENATE JUDICIARY COMMITTEE
Senator Noreen Evans, Chair
2011-2012 Regular Session
AB 1683 (Hagman)
As Amended March 22, 2012
Hearing Date: June 12, 2012
Fiscal: No
Urgency: No
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SUBJECT
Revocable Trusts
DESCRIPTION
This bill would provide that the power of a person other than
the settlor (person creating the trust) to revoke a trust
applies to all or a portion of the trust contributed by the
settlor, regardless of whether the settlor's portion was
separate or community property, and regardless of whether the
power to revoke is exercisable during the lifetime of the
settlor or continues after the settlor's death, or both. This
bill also would provide priority of disposition of trust
property when a trust is revoked by either the settlor or the
person with power of trust revocation.
BACKGROUND
As part of a person's estate planning, he or she may create a
trust into which the person transfers specified property.
Trusts are commonly used to avoid probate of the person's estate
upon the person's death and may provide certain tax advantages
relative to the property. There are two types of trust estate
plans; a testamentary trust, which is written into a will and
becomes effective upon death, and a living or inter vivos trust,
which is created by a separate document. There are two types of
inter vivos trusts, revocable and irrevocable. Unlike an
irrevocable trust, a revocable trust allows the person creating
the trust, referred to as the settlor, to revoke, alter, and
amend the trust.
Multiple settlors may create one revocable trust, and married
(more)
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persons commonly create a joint revocable trust, which allows
the surviving spouse to alter or amend the trust after the other
spouse's death or revoke, or terminate, the trust and distribute
the trust property. A joint revocable trust may contain the
spouses' community property and separate property.
Although spouses may create a joint revocable trust with the
stated intent in the trust document that the surviving spouse
would have the power to terminate the trust and distribute the
trust property as the surviving spouse sees fit, case law has
held that, with respect to community property held in the
revocable trust, the surviving spouse only has the right to
revoke the trust as it applies to that spouse's portion of
community property. (See Estate of Powell (2000) 83 Cal.App.4th
1434.)
This bill, sponsored by the Executive Committee of the Trusts
and Estates Section of the State Bar of California, would
provide that a surviving settlor of a revocable trust may revoke
the trust in its entirety, including property held as either
separate or community property.
CHANGES TO EXISTING LAW
1. Existing law provides that, unless a trust is expressly
made irrevocable by the trust instrument, the trust is
revocable by the settlor. (Prob. Code Sec. 15400.)
Existing law provides that a revocable trust may be revoked by
complying with any method of revocation provided in the trust
instrument or by a writing signed by the settlor during the
settlor's lifetime. (Prob. Code Sec. 15401(a).)
Existing law provides that, unless otherwise specified in the
trust instrument, if a trust is created by more than one
settlor, each settlor may revoke the trust as to the portion
of the trust contributed by that settlor, except as provided
Family Code Section 761. (Prob. Code Sec. 15401(b).)
Existing law , with respect to community property, provides
that, unless the trust instrument expressly provides
otherwise:
community property that is transferred into a trust
remains community property during the marriage, regardless
of the identity of the trustee, if the trust, originally or
as amended before or after the transfer, provides that the
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trust is revocable as to that property during the marriage
and the power, if any, to modify the trust as to the rights
and interests in that property during the marriage may be
exercised only with the joinder or consent of both spouses;
and
a power to revoke may be exercised by either spouse
acting alone; however, community property that is
distributed or withdrawn from a trust by revocation remains
community property unless there is a valid transmutation of
the property at the time of distribution or withdrawal.
(Fam. Code Sec. 761(a)-(b).)
This bill would provide that a revocable trust may be revoked
by the settlor or any other person as follows:
by complying with any method of revocation provided in
the trust instrument or by a writing signed by the settlor
or any other person holding the power of revocation and
delivered to the trustee during the lifetime of the settlor
or the person holding power of revocation;
unless otherwise provided in the trust instrument, a
trust created by more than one settlor may be revoked by
each settlor as to the portion of the trust contributed by
that settlor, except as provided by Family Code Section
761; and
a settlor may grant to another person, including, but
not limited to, his or her spouse, a power of revocation of
all or part of that portion of the trust contributed by
that settlor, regardless of whether that portion was
separate or community property of that settlor, and
regardless of whether the power to revoke is exercisable
during the settlor's lifetime, continues after the
settlor's death, or both.
2. Existing law provides that, at the termination of a trust,
the trust property shall be disposed of as follows:
in the case of a trust that is revoked by the settlor,
as directed by the settlor;
in the case of a trust that is terminated by the consent
of the settlor and all beneficiaries, as agreed by the
settlor and all beneficiaries;
in any other case, as provided in the trust instrument
or in a manner directed by the court that conforms as
nearly as possible to the intention of the settlor as
expressed in the trust instrument;
if a trust is terminated by the trustee, as specified,
the trust property may be distributed as determined by the
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trustee without the need for a court order; or
where the trust instrument does not provide a manner of
distribution at termination and the settlor's intent is not
adequately expressed in the trust instrument, the trustee
may distribute the trust property to the living
beneficiaries on an actuarial basis. (Prob. Code Sec.
15410.)
This bill would provide that, at the termination of a trust
that is revoked by the settlor, the trust property shall be
disposed of in the following order of priority:
as directed by the settlor;
as provided in the trust instrument; and
to the extent there is no direction by the settlor or in
the trust instrument, to the settlor, or his or her estate,
as the case may be.
This bill would provide that, at the termination of a trust
that is revoked by any person holding a power of revocation
other than the settlor, the trust property shall be disposed
of in the following order of priority:
as provided in the trust instrument;
as directed by the person exercising the power of
revocation; or
to the extent there is no direction in the trust
instrument or by the person exercising the power of
revocation, to the person exercising the power of
revocation, or his or her estate, as the case may be.
COMMENT
1. Stated need for the bill
The author writes:
The key issue is clarifying two probate code sections that
relate to revocation of trusts. Because the code sections are
unclear, powers to revoke are subject to incorrect
interpretations. In one case, a gentleman who was a joint
revocable trust settlor was denied revocation power by the
Court (in Estate of Powell, 83 Cal.App.4th 1434 (2000)) over
his wife's half of the estate upon her death, even though he
and his wife combined their estates when entering into the
joint revocable trust together and there were indications that
that was the wife's intent. Subsequent cases have further
clouded the waters.
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AB 1683 would take away the uncertainty that resulted from the
Court's interpretation of powers of revocation while providing
much needed protection of surviving spouses' (and other joint
settlors) property rights as declared in the trust.
The sponsor of this bill, the Executive Committee of the Trusts
& Estates Section of the State Bar of California (TEXCOM),
writes:
Estate of Powell, 83 Cal.App.4th 1434 (2000), and some
subsequent unpublished cases available for review on line have
created some confusion as to whether or not a settlor can
grant a power of revocation over that settlor's property that
is in a joint trust to a spouse after the death of the settlor
(or to another party that is not a spouse, for that matter).
This proposal would clarify the law by amending the Probate
Code to make it clear that a settlor can grant a spouse or
other party a power of revocation over the settlor's property
in a joint trust and that that power can continue after the
death of the settlor.
Separately, the same line of cases suggested a need to clarify
Section 15410 of the Probate Code to more clearly address what
should happen to property that is subject to a power of
revocation. This legislative proposal would provide that
needed clarification.
2. Revocation authority regarding separate and community property
held in trust
Existing law provides that a person with a power of revocation
of a trust, which is either the settlor of the trust or another
person named by the settlor, has power to terminate the trust,
and allows this person to control the ultimate disposition of
the trust property. This bill would authorize a person with
revocation power, other than the settlor, of a revocable trust
to revoke the trust as to both separate and community property.
TEXCOM states that:
In some situations, a joint revocable trust is prepared so
that after the first death, the entire remaining trust estate,
including that portion belonging to the deceased spouse,
remains revocable by the surviving spouse (sometimes referred
to as the "outright approach"). This mechanism is often used
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for smaller, typically non-taxable estates where the primary
purpose for creating a trust is probate avoidance, and in
cases where the deceased spouse is not concerned that the
surviving spouse might change the disposition of the deceased
spouse's share of the trust after the death of the deceased
spouse. Many spouses like to use the outright approach
because it is simple and it eliminates fiduciary duties a
surviving spouse acting as trustee would have under an
irrevocable trust.
TEXCOM argues that this bill would resolve the uncertainty that
resulted from the holding in Estate of Powell (2000) 83
Cal.App.4th 1434 "as to whether or not the outright approach can
be used to give a surviving spouse complete control over all of
the Trust Estate, including the deceased spouse's share."
In determining whether a spouse's revocation of a trust affected
both separate and community property, the Powell court discussed
the Legislature's enactment of AB 3686 (Horcher, Ch. 806, Stats.
1994). The court noted that AB 3686 included the provision that
revocation by a surviving settlor was subject to community
property restrictions under Family Code Section 761, and AB 3686
"reversed prior judicial decisions holding that a trust could
not be revoked by less than all joint settlors." (Id. at pp.
1440-1441.) The court determined that AB 3686 "must be
interpreted to cover the entire trust corpus rather than just
the revoking trustor's share." (Id. at p. 1441.) Accordingly,
the court held that revocation of a joint revocable trust is
only effective as to community property in the trust, and the
other property in the trust is only revoked as to the revoking
party's share. (Id.) At least two other courts have followed
Powell. (See Estate of Morra (2008) Cal.App. Unpub. LEXIS 1272;
Miller v. Miller (2004) Cal.App. Unpub. LEXXIS 10473.)
The author states that this bill would clarify current law "to
make sure persons (often married) who combine their properties
through joint revocable trust documents can grant a spouse or
other party a power of revocation, or the ability to change a
trust, upon the death of a spouse." The California Judges
Association (CJA), in support of this bill, argues that "�t]hese
clarifications provide guidance to the parties and to the
courts. They might help avoid hearings that are currently
needed to clarify ambiguous code sections." CJA further notes
that the result in Powell "could have been avoided with
provisions set �forth] in AB 1683, which clarifies that a spouse
has a right over the entirety of the estate included in the
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joint trust." This bill would provide clarity for settlors and
persons given power of revocation as to the extent of the power
of revocation.
3. Priority of trust property disposition
In the event a trust document is unclear about trust property
distribution, existing law provides priority of trust property
disposition upon the termination of a trust. (Prob. Code Sec.
15410.) This bill would further provide priority of trust
property disposition in cases where a person other than the
settlor has terminated the trust.
TEXCOM argues that this bill would clarify "what happens if a
power of revocation is exercised . . . and give the settlor the
right to control the power of revocation, if that is what the
settlor wants to do, but otherwise, the instructions of the
power holder are to be followed, as a power of revocation has
typically been viewed as virtual ownership of the property."
This bill would separately provide for distribution priority
when the settlor terminates a trust, and when the person holding
revocation power terminates the trust. In order to maintain the
settlor's intent, this bill would specify that, when a person
other than the settlor is revoking the trust, the trust property
first will be disposed of as provided in the trust instrument,
then as directed by the person exercising the power to revoke.
Support : California Judges Association
Opposition : None Known
HISTORY
Source : Executive Committee of the Trusts and Estates Section
of the State Bar of California
Related Pending Legislation : None Known
Prior Legislation :
AB 3686 (Horcher, Ch. 806, Stats. 1994) See Comment 2.
AB 759 (Friedman, Ch. 79, Stats. 1990) repealed and reenacted
the Probate Code, which added trust revocation authority and
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priority of trust disposition following trust revocation.
Prior Vote :
Assembly Floor (Ayes 68, Noes 0)
Assembly Committee on Judiciary (Ayes 8, Noes 0)
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