BILL ANALYSIS �
AB 1985
Page 1
CONCURRENCE IN SENATE AMENDMENTS
AB 1985 (Silva)
As Amended June 15, 2012
Majority vote
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|ASSEMBLY: |77-0 |(April 16, |SENATE: |36-0 |(July 5, 2012) |
| | |2012) | | | |
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Original Committee Reference: JUD.
SUMMARY : Extends protections against the ademption of specific
gifts due to the acts of an incapacitated principal's
conservator or agent to cover acts of a trustee of a revocable
trust whose settlor has become incapacitated. Specifically,
this bill :
1)Provides that where the settlor of a revocable trust executes
a specific gift and thereafter becomes incapacitated, and the
trustee of the revocable trust subsequently sells or encumbers
the specifically given property, the transferee of the
specific gift has the right to either: a) in the case of sale
of the property, a general pecuniary gift equal to the net
sale price of the property unreduced by the payoff of any
encumbrances incurred by the trustee after the settlor's
incapacity; or, b) in event that the property is encumbered
but not sold, the amount of the unpaid encumbrance on the
property as well as the property itself.
2)Provides that where the settlor of a revocable trust executes
a specific gift and thereafter becomes incapacitated, and the
trustee of the revocable trust subsequently receives an award
resulting from a taking of the property by eminent domain,
proceeds on fire or casualty insurance on the property, or
recovery for injury to the property, the transferee of the
specific gift has the right to a general pecuniary gift equal
to the eminent domain award, insurance proceeds, or recovery,
paid to the trustee, unreduced by the payoff of any
encumbrance placed on the property by the conservator, agent,
or trustee, after the execution of the instrument of gift.
The Senate amendments clarify that an award based on eminent
domain or insurance proceeds in 2) above, should be unreduced by
the payoff of any encumbrance placed on the property by the
AB 1985
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conservator, agent, or trustee, after the execution of the
instrument of gift.
EXISTING LAW :
1)Provides that where a principal executes a specific gift and
thereafter becomes incapacitated, if a conservator or agent
acting within the authority of a durable power of attorney
then sells or mortgages the specifically given property, 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.
2)Provides that where a principal executes a specific gift and
thereafter becomes incapacitated, the recipient of the
specific gift has the right to a general pecuniary gift equal
to any eminent domain award for the taking of the specifically
given property, proceeds of fire or casualty insurance on the
property, or recovery for injury to the property, paid to a
conservator or agent acting within the authority of a durable
power of attorney for the incapacitated principal.
3)Provides that statutes preventing ademption in specified
circumstances are not exhaustive and are not intended to
increase the incidence of ademption under California law.
AS PASSED BY THE ASSEMBLY , this bill was substantially similar
to the version approved by the Senate.
FISCAL EFFECT : None
COMMENTS : This bill would make explicit that protections
against ademption of specific gifts that apply to wills also
apply to trusts. The author and the sponsor, the Conference of
California Bar Associations, explain the clarifying effects of
the recent amendment:
Existing law (Probate Code Section 21134) provides that
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, the designated beneficiary is entitled to
receive either the unencumbered property or its value
prior to the encumbrance by the conservator or agent.
However, the law does not provide the same protection to
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the designated beneficiary of a trust, if the trustor
becomes incapacitated and the property is encumbered or
sold by a successor trustee.
One court faced with the issue has held in Brown v.
LaBow (2007), 157 Cal.App.4th 795, that Section 21134
also applies to trusts, but it had to rely heavily on
inference to do so.
The bill also protects against the ademption of a specific gift
in instances where, after a settlor of a revocable trust becomes
incapacitated, the property is taken by eminent domain or is
damaged. In such instances, this bill seeks to effect the
intent of the settlor by clarifying that the transferee of the
specifically given property is entitled to a general pecuniary
gift equal to the eminent domain award, insurance proceeds, or
other recovery paid to the trustee.
In addition, this bill clarifies that the presumption of a
principal's incapacity applicable to actions taken by an agent
under a durable power of attorney does not apply to actions
taken by trustees under a revocable trust.
Trust and Estates Section of the California State Bar (TEXCOM)
supports the bill as amended. TEXCOM notes the need to
explicitly apply the protections of Probate Code Section 21134
to the law of trusts: "As the use of trusts in estate planning
has become more pervasive, the lack of references in the current
statute to trusts, to specific gifts in trust by settlors, and
to the possible effects on specific gifts of actions by trustees
during a settlor's incapacity are glaring omissions that rightly
deserve to be corrected."
Analysis Prepared by : Leora Gershenzon / JUD. / (916)
319-2334
FN: 0004323