BILL ANALYSIS �
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|SENATE RULES COMMITTEE | AB 1985|
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CONSENT
Bill No: AB 1985
Author: Silva (R)
Amended: 6/15/12 in Senate
Vote: 21
SENATE JUDICIARY COMMITTEE : 4-0, 6/26/12
AYES: Evans, Harman, Corbett, Leno
NO VOTE RECORDED: Blakeslee
ASSEMBLY FLOOR : 77-0, 4/16/12 (Consent) - See last page
for vote
SUBJECT : Trusts and estates: construction of
instruments
SOURCE : Conference of California Bar Associations
DIGEST : This bill clarifies the rule of construction of
a trust to provide that, when a trustee sells or encumbers
property gifted to a beneficiary under a revocable trust,
the gift to the beneficiary is not adeemed (cancelled).
This bill also would clarify that a beneficiary has the
right to a general pecuniary gift equal to the net sale
price of the property unreduced by a payoff of any
encumbrance on the property or the amount of the unpaid
encumbrance on the property as well as the property itself.
ANALYSIS : Existing law:
1.Provides that, unless the provision or context otherwise
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requires, the rules for interpretation of an instrument
apply to a will, trust, deed, and any other instrument.
2.Provides that the intention of the transferor as
expressed in the transfer instrument controls the legal
effect of the dispositions made in the instrument, and
the rules of construction apply where the intention of
the transferor is not indicated by the transfer
instrument.
3.Provides that, if after the execution of the instrument,
a specifically gifted property is sold or mortgaged by a
conservator or by an agent acting within the authority of
a durable power of attorney for an incapacitated
principal, the transferee of the specific gift has the
right to a general pecuniary gift equal to the net sale
price of, or the amount of the unpaid loan on, the
property.
4.Provides that, if an eminent domain award for the taking
of specifically gifted property is paid to a conservator
or to an agent acting within the authority of a durable
power of attorney for an incapacitated principal, or if
the proceeds on fire or casualty insurance on, or
recovery for injury to, specifically gifted property are
paid to a conservator or to an agent acting within the
authority of a durable power of attorney for an
incapacitated principal, the recipient of the specific
gift has the right to a general pecuniary gift equal to
the eminent domain award or the insurance proceeds or
recovery.
5.Provides that, for the purpose of the references to an
agent acting with the authority of a durable power of
attorney for an incapacitated principal, (a)
"incapacitated principal" means a principal who is an
incapacitated person, (b) no adjudication of incapacity
before death is necessary, and (c) the acts of an agent
within the authority of a durable power of attorney are
presumed to be for an incapacitated principal.
This bill:
1.Provides ademption protection for a beneficiary when a
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trustee sells or encumbers, on behalf of the
incapacitated settlor of a revocable trust, the gift to
the beneficiary.
2.Provides for encumbrance of a gift by deed of trust,
mortgage, or other instrument.
3.Clarifies that a beneficiary has the right to a general
pecuniary gift equal to the net sale price of the
property unreduced by a payoff of the encumbrance or the
amount of the unpaid encumbrance on the property as well
as the property itself.
4.Provides that, regarding eminent domain awards, proceeds
on fire or casualty insurance, or recovery for injury
paid to a conservator, agent, or trustee, the recipient
of the specific gift has the right to a general pecuniary
gift equal to the eminent domain award or the insurance
proceeds or recovery, unreduced by the payoff of any
encumbrance placed on the property by such a conservator,
agent, or trustee, after the execution of the instrument
of gift.
5.Provides that there shall be no presumption of a
settlor's incapacity concerning the acts of a trustee.
FISCAL EFFECT : Appropriation: No Fiscal Com.: No
Local: No
SUPPORT : (Verified 6/28/12)
Conference of California Bar Association (source)
Executive Committee of the Trusts & Estates Section of the
State Bar of California
ARGUMENTS IN SUPPORT : According to the author:
Existing law (Probate Code �Section] 21134) provides
that designated beneficiaries of real property under a
will are entitled to receive either the property or
its value, free of any encumbrances imposed by a
conservator or attorney-in-fact following the
incapacity of the testator. While this statute does
not make specific mention of trusts, at least one
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court, Brown v. LaBow (2007), 157 Cal.App.4th 795, ?
has held that Probate Code �Section] 21134 applies to
trusts as well.
To avoid any inconsistency in the application of
Probate Code �21134, the statute should be amended to
specifically include trusts established as revocable
trusts.
The Conference of California Bar Associations (CCBA)
writes:
AB 1985 would amend Probate Code �Section] 21134 to
make the law of trusts consistent with the law of
wills regarding specifically gifted property.
Specifically, it would provide that if a trustor makes
a specific gift of real property to a beneficiary,
then becomes incapacitated and his or her successor
trustee sells or encumbers the property, the
designated beneficiary is entitled to receive either
the unencumbered property or its value prior to the
encumbrance by the conservator or agent.
Existing law specifically provides for such an outcome
when a testator makes a specific gift of real property
to a beneficiary in a will, then becomes incapacitated
and his or her conservator or agent sells or encumbers
the property. However the statute is silent with
regards to trusts. One court faced with the question
of whether this section - which �is] a section of the
codes relating to "Construction of Trusts and Other
Instruments" - has held that �Section] 21134 also
applies to trusts, but it had to rely heavily on
inference to do so (Brown v. LaBow (2007), 157
Cal.App.4th 795). AB 1985 would make this application
specific, eliminating the need for courts to imply
what appears to be the Legislature's clear intent.
AB 1985 would also clarify the concept of "mortgage,"
as used in the statute, consistent with other uses of
the concept in the Probate Code, and would make
specific that, absent evidence of contrary intent by
the donor, the designated transferee is entitled to
either the gifted property or, if the property is not
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available, the full value thereof, not reduced by
amount of any intervening encumbrance imposed by a
conservator, agent, or trustee. Both of these changes
are intended to clarify existing law.
ASSEMBLY FLOOR : 77-0, 4/16/12
AYES: Achadjian, Alejo, Allen, Ammiano, Atkins, Beall,
Bill Berryhill, Block, Blumenfield, Bonilla, Bradford,
Brownley, Buchanan, Butler, Charles Calderon, Campos,
Carter, Chesbro, Conway, Cook, Dickinson, Donnelly, Eng,
Feuer, Fletcher, Fong, Fuentes, Beth Gaines, Galgiani,
Garrick, Gatto, Gordon, Gorell, Grove, Hagman, Halderman,
Hall, Harkey, Hayashi, Roger Hern�ndez, Hill, Huber,
Hueso, Huffman, Jeffries, Jones, Knight, Lara, Logue,
Bonnie Lowenthal, Ma, Mansoor, Mendoza, Miller, Mitchell,
Monning, Morrell, Nestande, Nielsen, Norby, Olsen, Pan,
Perea, V. Manuel P�rez, Portantino, Silva, Skinner,
Smyth, Solorio, Swanson, Torres, Valadao, Wagner,
Wieckowski, Williams, Yamada, John A. P�rez
NO VOTE RECORDED: Cedillo, Davis, Furutani
RJG:n 6/28/12 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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