BILL ANALYSIS �
AB 1859
Page 1
Date of Hearing: April 7, 2014
ASSEMBLY COMMITTEE ON BANKING AND FINANCE
Roger Dickinson, Chair
AB 1859 (Maienschein) - As Amended: April 1, 2014
SUBJECT : Professional fiduciaries: professional corporations.
SUMMARY : Provides for the formation of licensed professional
fiduciary corporations (fiduciary corporations). Specifically,
this bill :
1)Provides that a fiduciary corporation is a corporation that is
authorized to render professional services if that corporation
and its shareholders, officers, directors and employees
rendering professional services who are licensed professional
fiduciaries are in compliance with the Moscone-Know
Professional Corporation Act (Moscone-Knox Act).
2)States that it is unprofessional conduct and a violation of
proposed provisions of this bill for any licensed person to
violate or attempt to violate various provisions of the
Moscone-Knox Act.
3)Prohibits a fiduciary corporation from committing or omitting
any act that would constitute unprofessional conduct under any
statute or regulation.
4)Requires that the name of a fiduciary corporation shall
contain the words "professional fiduciary."
5)Mandates that each director, shareholder, and officer must be
a licensed professional fiduciary.
6)States that the income of a fiduciary corporation attributable
to professional services rendered while a shareholder is a
disqualified person shall not accrue to the benefit of the
shareholder.
7)Provides that the Professional Fiduciaries Bureau (Bureau)
within the Department of Consumer Affairs may adopt and
enforce regulations, including the following:
a) A regulation that requires the bylaws of a fiduciary
corporation to include a provision that requires the
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capital stock of the corporation owned by a disqualified
person to be sold to the corporation or the remaining
shareholders within a time specified by the regulation.
b) A regulation that requires the fiduciary corporation to
provide adequate security by insurance or otherwise for
claims against the corporation by its customers arising out
of the rendering of professional services.
8)Allows each shareholder, officer, director, or employee of the
corporation to exercise the powers and duties of a personal
representative, a trustee, guardian or conservator if the
fiduciary corporation is appointed to act in those capacities.
EXISTING LAW
1)Provides for the licensure and regulation of professional
fiduciaries (Business & Professions Code Section 6500 et
seq.).
2)Under the Moscone-Knox Act allows the formation and operation
of professional corporations (Corporations Code, Section 13400
et seq.).
3) Defines a "professional corporation" as a corporation
organized under the general corporation law, as specified, or
a corporation that is engaged in rendering professional
services in a single profession (Corporations Code, Section
13401).
4)Allows a professional corporation to lawfully render
professional services, but only through employees that are
licensed persons. The corporation may employ non-licensed
persons but they may not perform any professional services
requiring licensure (Corporations Code, Section 13405).
FISCAL EFFECT : Unknown
COMMENTS :
Need for the bill.
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According to the sponsor, Professional Fiduciary Association of
California (PFAC), this bill is necessary for the following
reasons:
Fiduciaries serve by court appointment as guardians,
conservators and personal representatives of estates. They
also serve by agreement as trustees, representative payees
or as agents under powers of attorney.
Authorizing professional fiduciaries to be organized as
professional corporations will enable these businesses to
better serve the needs of the individuals they serve
including those who are elderly, disabled or impaired.
Many clients of licensed professional fiduciaries live for
an extended period of time, and the organization of the
business of the fiduciaries as professional corporations
would enable a continuity of care for the clients as the
entities would then be able to have several licensed
individuals who can care for a client.
The professional corporation structure would allow for
numerous skill sets to serve the clients. For example, one
fiduciary could have skill regarding medical needs, the
other fiduciary could have the skill of financial and tax
needs, another could be knowledgeable in property
management.
If formed as professional corporations, several licensed
fiduciaries would be able to work together and to ensure
that a knowledgeable, licensed fiduciary is available to
meet the needs of the individual.
Licensed fiduciaries organized as professional corporations
would obtain certain benefits of the corporate form of
doing business, such as protection of assets from liability
for claims not involving malpractice, favorable tax
benefits for the payment of health insurance premiums, and
possible protection of assets for qualified retirement
plans belonging to a corporation.
Fiduciaries can serve by court appointment or by private
agreement. Court appointed fiduciaries are known as guardians
or conservators. Fiduciaries serve by agreement as daily money
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managers, trustees, representative payees, or as agents under
financial or health care powers of attorney. A fiduciary can be
an individual or a corporate entity like a bank's trust
department.
Professional fiduciary services range from those that are less
restrictive to those that essentially have the fiduciary take
control of most of the affairs of the incapacitated person.
The least restrictive type of professional fiduciary is the
daily money manager. They handle day-to-day finances and can be
retained by the person who needs the assistance or by a family
member serving as Agent under a Power of Attorney. Daily money
manager often serve as the eyes, ears, hands and feet of the
older adult, allowing them to retain maximum control of their
own affairs.
Next along the continuum are professionals who serve as Agent
under a Power of Attorney or Health Care Surrogate document, or
who serve as trustee under a trust. These arrangements must be
made in writing while an individual has the legal capacity to
make such an appointment, even if the services of the fiduciary
will not begin until the individual lacks capacity. There are
restrictions (which vary by state) regarding who may serve as a
professional agent or trustee. The responsibility of the
fiduciary in these situations is to carry out the instructions
in any written documents (e.g., trust, POA, Advance Health Care
Directive, etc.) or, where appropriate and allowed by law, to
use substituted judgment or the best interest standards to
handle the incapacitated person's affairs.
The most restrictive fiduciary arrangement is conservatorship or
guardianship. Conservatorship is a legal tool to provide
management for the financial and/or personal affairs of
individuals deemed by the court to be physically or mentally
incapacitated. The conservator is legally appointed to manage
the incapacitated person (or ward's) property and/or person and
all aspects of the guardianship are overseen by the court.
Clarification needed.
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Section 2, 3 and 4 of the bill provide that if the fiduciary
corporation is appointed as a guardian or conservator, personal
representative, or trustee then each shareholder, officer,
director, or employee can individually exercise the powers and
duties appointed. The committee recommends that the author,
sponsor and other stakeholders work out some language that
clarifies that should an individual in some way violate the
duties when the corporation has been appointed that the
fiduciary corporation ultimately has liability for those acts.
A straightforward interpretation would indicate that if a court
appoints a corporation to fulfill these duties then a violation
of these responsibilities would bring liability upon the
corporation. However, this needs clarification and clearer
delineation of legal liabilities and responsibilities in these
specific circumstances.
This bill is double referred to Assembly Business & Professions
Committee.
REGISTERED SUPPORT / OPPOSITION :
Support
Professional Fiduciary Association of California (Sponsor)
Opposition
None on file.
Analysis Prepared by : Mark Farouk / B. & F. / (916) 319-3081