California Senate Bill SB105 Amended / Bill

 BILL NUMBER: SB 105AMENDED BILL TEXT AMENDED IN ASSEMBLY JUNE 22, 2010 INTRODUCED BY Senator Harman JANUARY 27, 2009 An act to amend Section 6103.6 of the Business and Professions Code,  to amend Sections 366.2 and 366.3 of the Code of Civil Procedure,  and to amend Sections  1303, 1304,  2583,  6112,  15642, 16062, and 21310 of,  to add Section 13 to,  to add Part 3.5 (commencing with Section 21360) to Division 11 of, and to repeal Part 3.5 (commencing with Section 21350) of Division 11 of, the Probate Code, relating to donative transfers. LEGISLATIVE COUNSEL'S DIGEST SB 105, as amended, Harman. Donative transfers: restrictions. Existing law generally prohibits an instrument from making a donative transfer to the person who drafted or transcribed the instrument and certain other disqualified persons. This provision is subject to specified exceptions, including when the instrument is reviewed by an independent attorney who counsels the client about the nature and consequences of the intended transfer, attempts to determine if the intended consequence is the result of fraud, menace, duress, or undue influence, and signs and delivers to the transferor a certificate of independent review. This bill would revise and recast these provisions to establish an express presumption of fraud or undue influence when a donative instrument makes a gift to the person who drafted or transcribed the instrument, and certain other disqualified persons. The bill would define relevant terms for purposes of these provisions and make other technical and conforming changes. Vote: majority. Appropriation: no. Fiscal committee: no. State-mandated local program: no. THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS: SECTION 1. Section 6103.6 of the Business and Professions Code is amended to read: 6103.6. Violation of Section 15687 of the Probate Code, or of Part 3.5 (commencing with Section 21360) of Division 11 of the Probate Code, shall be grounds for discipline, if the attorney knew or should have known of the facts leading to the violation. This section shall only apply to violations that occur on or after January 1, 1994.  SEC. 2.   Section 366.2 of the Code of Civil Procedure is amended to read: 366.2. (a) If a person against whom an action may be brought on a liability of the person, whether arising in contract, tort, or otherwise, and whether accrued or not accrued, dies before the expiration of the applicable limitations period, and the cause of action survives, an action may be commenced within one year after the date of death, and the limitations period that would have been applicable does not apply. (b) The limitations period provided in this section for commencement of an action shall not be tolled or extended for any reason except as provided in any of the following, where applicable: (1) Sections 12, 12a, and 12b of this code. (2) Part 4 (commencing with Section 9000) of Division 7 of the Probate Code (creditor claims in administration of estates of decedents). (3) Part 8 (commencing with Section 19000) of Division 9 of the Probate Code (payment of claims, debts, and expenses from revocable trust of deceased settlor). (4) Former Part 3 (commencing with Section 21300) of Division 11 of the Probate Code (no contest clauses), as that part read prior to its repeal by Chapter 174 of the Statutes of 2008. (c) This section applies to actions brought on liabilities of persons dying on or after January 1, 1993.   SEC. 3.   Section 366.3 of the Code of Civil Procedure is amended to read: 366.3. (a) If a person has a claim that arises from a promise or agreement with a decedent to distribution from an estate or trust or under another instrument, whether the promise or agreement was made orally or in writing, an action to enforce the claim to distribution may be commenced within one year after the date of death, and the limitations period that would have been applicable does not apply. (b) The limitations period provided in this section for commencement of an action shall not be tolled or extended for any reason except as provided in Sections 12, 12a, and 12b of this code, and former Part 3 (commencing with Section 21300) of Division 11 of the Probate Code, as that part read prior to its repeal by Chapter 174 of the Statutes of 2008. (c) This section applies to actions brought on claims concerning persons dying on or after the effective date of this section.   SEC. 4.   Section 13 is added to the Probate Code, to read: 13. (a) The degree of kinship or consanguinity between two persons is determined by counting the number of generations separating those persons, pursuant to subdivision (b) or (c). Each generation is called a degree. (b) Lineal kinship or consanguinity is the relationship between two persons, one of whom is a direct descendant of the other. The degree of kinship between those persons is determined by counting the generations separating the first person from the second person. In counting the generations, the first person is excluded and the second person is included. For example, parent and child are related in the first degree of lineal kinship or consanguinity, grandchild and grandparent are related in the second degree, and great-grandchild and great-grandparent are related in the third degree. (c) Collateral kinship or consanguinity is the relationship between two people who spring from a common ancestor, but neither person is the direct descendent of the other. The degree of kinship is determined by counting the generations from the first person up to the common ancestor and from the common ancestor down to the second person. In counting the generations, the first person is excluded, the second person is included, and the common ancestor is counted only once. For example, siblings are related in the second degree of collateral kinship or consanguinity, an aunt or uncle and a niece or nephew are related in the third degree, and first cousins are related in the fourth degree.   SEC. 5.   Section 1303 of the Probate Code is amended to read: 1303. With respect to a decedent's estate, the grant or refusal to grant the following orders is appealable: (a) Granting or revoking letters to a personal representative, except letters of special administration or letters of special administration with general powers. (b) Admitting a will to probate or revoking the probate of a will. (c) Setting aside a small estate under Section 6609. (d) Setting apart a probate homestead or property claimed to be exempt from enforcement of a money judgment. (e) Granting, modifying, or terminating a family allowance. (f) Determining heirship, succession, entitlement, or the persons to whom distribution should be made. (g) Directing distribution of property. (h) Determining that property passes to, or confirming that property belongs to, the surviving spouse under Section 13656. (i) Authorizing a personal representative to invest or reinvest surplus money under Section 9732. (j) Determining whether an action constitutes a contest under former Chapter 2 (commencing with Section 21320) of Part 3 of Division 11, as that chapter read prior to its repeal by Chapter 174 of the Statutes of 2008. (k) Determining the priority of debts under Chapter 3 (commencing with Section 11440) of Part 9 of Division 7. (l) Any final order under Chapter 1 (commencing with Section 20100) or Chapter 2 (commencing with Section 20200) of Division 10.   SEC. 6.   Section 1304 of the Probate Code is amended to read: 1304. With respect to a trust, the grant or denial of the following orders is appealable: (a) Any final order under Chapter 3 (commencing with Section 17200) of Part 5 of Division 9, except the following: (1) Compelling the trustee to submit an account or report acts as trustee. (2) Accepting the resignation of the trustee. (b) Any final order under Chapter 2 (commencing with Section 19020) of Part 8 of Division 9. (c) Any final order under Part 1 (commencing with Section 20100) and Part 2 (commencing with Section 20200) of Division 10. (d) Determining whether an action constitutes a contest under former Chapter 2 (commencing with Section 21320) of Part 3 of Division 11, as that chapter read prior to its repeal by Chapter 174 of the Statutes of 2008.   SEC. 7.   SEC. 2.  Section 2583 of the Probate Code is amended to read: 2583. In determining whether to authorize or require a proposed action under this article, the court shall take into consideration all the relevant circumstances, which may include, but are not limited to, the following: (a) Whether the conservatee has legal capacity for the proposed transaction and, if not, the probability of the conservatee's recovery of legal capacity. (b) The past donative declarations, practices, and conduct of the conservatee. (c) The traits of the conservatee. (d) The relationship and intimacy of the prospective donees with the conservatee, their standards of living, and the extent to which they would be natural objects of the conservatee's bounty by any objective test based on such relationship, intimacy, and standards of living. (e) The wishes of the conservatee. (f) Any known estate plan of the conservatee (including, but not limited to, the conservatee's will, any trust of which the conservatee is the settlor or beneficiary, any power of appointment created by or exercisable by the conservatee, and any contract, transfer, or joint ownership arrangement with provisions for payment or transfer of benefits or interests at the conservatee's death to another or others which the conservatee may have originated). (g) The manner in which the estate would devolve upon the conservatee's death, giving consideration to the age and the mental and physical condition of the conservatee, the prospective devisees or heirs of the conservatee, and the prospective donees. (h) The value, liquidity, and productiveness of the estate. (i) The minimization of current or prospective income, estate, inheritance, or other taxes or expenses of administration. (j) Changes of tax laws and other laws which would likely have motivated the conservatee to alter the conservatee's estate plan. (k) The likelihood from all the circumstances that the conservatee as a reasonably prudent person would take the proposed action if the conservatee had the capacity to do so. (l) Whether any beneficiary is the spouse or domestic partner of the conservatee. (m) Whether a beneficiary has committed physical abuse, neglect, false imprisonment, or fiduciary abuse against the conservatee after the conservatee was substantially unable to manage his or her financial resources, or resist fraud or undue influence, and the conservatee's disability persisted throughout the time of the hearing on the proposed substituted judgment.  SEC. 8.   Section 6112 of the Probate Code is amended to read: 6112. (a) Any person generally competent to be a witness may act as a witness to a will. (b) A will or any provision thereof is not invalid because the will is signed by an interested witness. (c) A devise to a subscribing witness is governed by Section 21380.  SEC. 9.   SEC. 3.  Section 15642 of the Probate Code is amended to read: 15642. (a) A trustee may be removed in accordance with the trust instrument, by the court on its own motion, or on petition of a settlor, cotrustee, or beneficiary under Section 17200. (b) The grounds for removal of a trustee by the court include the following: (1) Where the trustee has committed a breach of the trust. (2) Where the trustee is insolvent or otherwise unfit to administer the trust. (3) Where hostility or lack of cooperation among cotrustees impairs the administration of the trust. (4) Where the trustee fails or declines to act. (5) Where the trustee's compensation is excessive under the circumstances. (6) Where the sole trustee is a person described in subdivision (a) of Section 21380, whether or not the person is the transferee of a donative transfer by the transferor, unless, based upon any evidence of the intent of the settlor and all other facts and circumstances, which shall be made known to the court, the court finds that it is consistent with the settlor's intent that the trustee continue to serve and that this intent was not the product of fraud or undue influence. Any waiver by the settlor of this provision is against public policy and shall be void. This paragraph shall not apply to instruments that became irrevocable on or before January 1, 1994. This paragraph shall not apply if any of the following conditions are met: (A) The settlor is related by blood or marriage to, or is a cohabitant with, any one or more of the trustees, the person who drafted or transcribed the instrument, or the person who caused the instrument to be transcribed. (B) The instrument is reviewed by an independent attorney who (1) counsels the settlor about the nature of his or her intended trustee designation and (2) signs and delivers to the settlor and the designated trustee a certificate in substantially the following form: ""CERTIFICATE OF INDEPENDENT REVIEW I, _______________________________, have reviewed (attorney's name) ____________________and have counseled my client, (name of instrument) __________, fully and privately on the nature and (name of client) legal effect of the designation as trustee  ___   of  ___ (name of trustee) contained in that instrument. I am so disassociated from the interest of the person named as trustee as to be in a position to advise my client impartially and confidentially as to the consequences of the designation. On the basis of this counsel, I conclude that the designation of a person who would otherwise be subject to removal under paragraph (6) of subdivision (b) of Section 15642 of the Probate Code is clearly the settlor's intent and that intent is not the product of fraud or undue influence. ____________________________ __________________'' (Name of Attorney) (Date) This independent review and certification may occur either before or after the instrument has been executed, and if it occurs after the date of execution, the named trustee shall not be subject to removal under this paragraph. Any attorney whose written engagement signed by the client is expressly limited to the preparation of a certificate under this subdivision, including the prior counseling, shall not be considered to otherwise represent the client. (C) After full disclosure of the relationships of the persons involved, the instrument is approved pursuant to an order under Article 10 (commencing with Section 2580) of Chapter 6 of Part 4 of Division 4. (7) If, as determined under Part 17 (commencing with Section 810) of Division 2, the trustee is substantially unable to manage the trust's financial resources or is otherwise substantially unable to execute properly the duties of the office. When the trustee holds the power to revoke the trust, substantial inability to manage the trust' s financial resources or otherwise execute properly the duties of the office may not be proved solely by isolated incidents of negligence or improvidence. (8) If the trustee is substantially unable to resist fraud or undue influence. When the trustee holds the power to revoke the trust, substantial inability to resist fraud or undue influence may not be proved solely by isolated incidents of negligence or improvidence. (9) For other good cause. (c) If, pursuant to paragraph (6) of subdivision (b), the court finds that the designation of the trustee was not consistent with the intent of the settlor or was the product of fraud or undue influence, the person being removed as trustee shall bear all costs of the proceeding, including reasonable attorney's fees. (d) If the court finds that the petition for removal of the trustee was filed in bad faith and that removal would be contrary to the settlor's intent, the court may order that the person or persons seeking the removal of the trustee bear all or any part of the costs of the proceeding, including reasonable attorney's fees. (e) If it appears to the court that trust property or the interests of a beneficiary may suffer loss or injury pending a decision on a petition for removal of a trustee and any appellate review, the court may, on its own motion or on petition of a cotrustee or beneficiary, compel the trustee whose removal is sought to surrender trust property to a cotrustee or to a receiver or temporary trustee. The court may also suspend the powers of the trustee to the extent the court deems necessary. (f) For purposes of this section, the term "related by blood or marriage" shall include persons within the seventh degree.  SEC. 10.   SEC. 4.  Section 16062 of the Probate Code is amended to read: 16062. (a) Except as otherwise provided in this section and in Section 16064, the trustee shall account at least annually, at the termination of the trust, and upon a change of trustee, to each beneficiary to whom income or principal is required or authorized in the trustee's discretion to be currently distributed. (b) A trustee of a living trust created by an instrument executed before July 1, 1987, is not subject to the duty to account provided by subdivision (a). (c) A trustee of a trust created by a will executed before July 1, 1987, is not subject to the duty to account provided by subdivision (a), except that if the trust is removed from continuing court jurisdiction pursuant to Article 2 (commencing with Section 17350) of Chapter 4 of Part 5, the duty to account provided by subdivision (a) applies to the trustee. (d) Except as provided in Section 16064, the duty of a trustee to account pursuant to former Section 1120.1a of the Probate Code (as repealed by Chapter 820 of the Statutes of 1986), under a trust created by a will executed before July 1, 1977, which has been removed from continuing court jurisdiction pursuant to former Section 1120.1a, continues to apply after July 1, 1987. The duty to account under former Section 1120.1a may be satisfied by furnishing an account that satisfies the requirements of Section 16063. (e) Any limitation or waiver in a trust instrument of the obligation to account is against public policy and shall be void as to any sole trustee who is described in subdivision (a) of Section 21380 and is not described in Section 21382.  SEC. 11.   SEC. 5.  Section 21310 of the Probate Code is amended to read: 21310. As used in this part: (a) "Contest" means a pleading filed with the court by a beneficiary that would result in a penalty under a no contest clause, if the no contest clause is enforced. (b) "Direct contest" means a contest that alleges the invalidity of a protected instrument or one or more of its terms, based on one or more of the following grounds: (1) Forgery. (2) Lack of due execution. (3) Lack of capacity. (4) Menace, duress, fraud, or undue influence. (5) Revocation of a will pursuant to Section 6120, revocation of a trust pursuant to Section 15401, or revocation of an instrument other than a will or trust pursuant to the procedure for revocation that is provided by statute or by the instrument. (6) Disqualification of a beneficiary under Section  6112 or  21380. (c) "No contest clause" means a provision in an otherwise valid instrument that, if enforced, would penalize a beneficiary for filing a pleading in any court. (d) "Pleading" means a petition, complaint, cross-complaint, objection, answer, response, or claim. (e) "Protected instrument" means all of the following instruments: (1) The instrument that contains the no contest clause. (2) An instrument that is in existence on the date that the instrument containing the no contest clause is executed and is expressly identified in the no contest clause, either individually or as part of an identifiable class of instruments, as being governed by the no contest clause.  SEC. 12.   SEC. 6.  Part 3.5 (commencing with Section 21350) of Division 11 of the Probate Code is repealed.  SEC. 13.   SEC. 7.  Part 3.5 (commencing with Section 21360) is added to Division 11 of the Probate Code, to read: PART 3.5. Presumption of Fraud or Undue Influence CHAPTER 1. DEFINITIONS 21360. The definitions in this chapter govern the construction of this part. 21362. (a) "Care custodian" means a person who provides health or social services to a dependent adult  for   remuneration, as a profession or occupation. The remuneration need not be paid by the dependent adult.   , except that "care custodian" does not include a person who provided services without remuneration if the person had a personal relationship with the dependent adult (1) at least 90 days before providing those services, (2) at least six months before the dependent adult's death, and (3) before the dependant adult was   admitted to hospice care, if the dependent adult was admitted to hospice care. As used in this subdivision, "remuneration" does not include the donative transfer at issue under this chapter or the reimbursement of expenses.  (b) For the purposes of this section, "health and social services"  include, but are   means services provided to a dependent adult because of the person's dependent condition, including, but  not limited to, the administration of medicine, medical testing, wound care, assistance with hygiene, companionship, housekeeping, shopping, cooking, and assistance with finances. 21364. "Cohabitant" has the meaning provided in Section 13700 of the Penal Code. 21366. "Dependent adult" means a person who, at the time of executing the instrument at issue under this part, was  18 years of age or older and satisfied one or both of the following conditions:   (a) The person was unable to provide properly for the person's personal needs for physical health, food, clothing, or shelter.   (b)     The person was substantially unable to manage the person's own financial resources or resist fraud or undue influence. Substantial inability may not be proved solely by isolated incidents of negligence or improvidence.   a person described in either of the following:   (a) The person was 65 years of age or older and satisfied one or both of the following criteria:   (1) The person was unable to provide properly for his or her personal needs for physical health, food, clothing, or shelter.   (2) Due to one or more deficits in the mental functions listed in paragraphs (1) to (4), inclusive, of subdivision (a) of Section 811, the person had difficulty managing his or her own financial resources or resisting fraud or undue influence.   (b) The person was 18 years of age or older and satisfied one or both of the following criteria:   (1) The person was unable to provide properly for his or her personal needs for physical health, food, clothing, or shelter.   (2) Due to one or more deficits in the mental functions listed in paragraphs (1) to (4), inclusive, of subdivision (a) of Section 811, the person had substantial difficulty managing his or her own financial resources or resisting fraud or undue influence.  21368. "Domestic partner" has the meaning provided in Section 297 of the Family Code. 21370. "Independent attorney" means an attorney who has no legal, business, financial, professional, or personal relationship with the beneficiary of a donative transfer at issue under this part  , and who would not be appointed as a fiduciary or receive any pecuniary benefit as a result of the operation of the instrument containing the donative transfer at issue under this part  .  21372. (a) "Interested witness" means a subscribing witness to a will executed under Section 6110, who is also a devisee of the will. (b) Notwithstanding subdivision (a), a person is not an "interested witness" if there are at least two subscribing witnesses who are not devisees of the will.  21374. (a) A person who is "related by blood or affinity" to a specified person means any of the following persons: (1) A spouse or domestic partner of the specified person. (2) A relative within a specified degree of kinship to the specified person or within a specified degree of kinship to the spouse or domestic partner of the specified person. (3) The spouse or domestic partner of a person described in paragraph (2). (b) For the purposes of this section, "spouse or domestic partner" includes a predeceased spouse or predeceased domestic partner. (c) In determining a relationship under this section, Sections 6406 and 6407, and Chapter 2 (commencing with Section 6450) of Part 2 of Division 6, are applicable. CHAPTER 2. OPERATION AND EFFECT OF PRESUMPTION 21380. (a) A provision of an instrument making a donative transfer to any of the following persons is presumed to be the product of fraud or undue influence: (1) The person who drafted the instrument. (2) A person in a fiduciary relationship with the transferor who transcribed the instrument or caused it to be transcribed. (3) A care custodian of a transferor who is a dependent adult, but only if the instrument was executed during the period in which the care custodian provided services to the transferor  ,   or within 90 days before or after that period  .  (4) An interested witness.   (5)   (4)  A person who is related by blood or affinity, within the third degree, to any person described in paragraphs (1) to (4), inclusive.  (6)   (5)  A cohabitant or employee of any person described in paragraphs (1) to (4), inclusive.  (7)   (6)  A partner, shareholder, or employee of a law firm in which a person described in paragraph (1) or (2) has an ownership interest. (b) The presumption created by this section is a presumption affecting the burden of proof. The presumption may be rebutted by proving, by  a preponderance of the   clear and convincing  evidence, that the donative transfer was not the product of fraud or undue influence.  (c) Notwithstanding subdivision (b), with respect to a donative transfer to the person who drafted the donative instrument, or to a person who is related to or associated with the drafter as described in paragraph (4), (5), or (6) of subdivision (a), the presumption created by this section is conclusive.   (c)   (d)  If a beneficiary is unsuccessful in rebutting the presumption, the beneficiary shall bear all costs of the proceeding, including reasonable attorney's fees. 21382. Section 21380 does not apply to any of the following instruments or transfers: (a) A donative transfer to a person who is related by blood or affinity, within the  fifth   fourth  degree, to the transferor or is the cohabitant of the transferor. (b) An instrument that is drafted or transcribed by a person who is related by blood or affinity, within the  fifth   fourth  degree, to the transferor or is the cohabitant of the transferor. (c) An instrument that is approved pursuant to an order under Article 10 (commencing with Section 2580) of Chapter 6 of Part 4 of Division 4, after full disclosure of the relationships of the persons involved. (d) A donative transfer to a federal, state, or local public entity, an entity that qualifies for an exemption from taxation under Section 501(c)(3) or 501(c)(19) of the Internal Revenue Code, or a trust holding the transferred property for the entity. (e) A donative transfer of property valued at five thousand dollars ($5,000) or less, if the total value of the transferor's estate equals or exceeds the amount stated in Section 13100. (f) An instrument executed outside of California by a transferor who was not a resident of California when the instrument was executed. 21384. (a) A gift is not subject to Section 21380 if the instrument is reviewed by an independent attorney who counsels the transferor  , out of the presence of any heir or proposed beneficiary,  about the nature and consequences of the intended transfer, including the effect of the intended transfer on the transferor's heirs and on any beneficiary of a prior donative instrument,  attempts to determine if the intended transfer is the result of fraud or undue influence, and signs and delivers to the transferor an original certificate in substantially the following form: ""CERTIFICATE OF INDEPENDENT REVIEW I, ______________________________, have reviewed (attorney's name) _______________and have counseled the transferor, (name of instrument) __________, on the nature and consequences of any (name of transferor) transfers of property to ________________________ (name of person described in Section 21380 of the Probate Code) that would be made by the instrument. I am an ""independent attorney'' as defined in Section 21370 of the Probate Code and am in a position to advise the transferor independently, impartially, and confidentially as to the consequences of the transfer. On the basis of this counsel, I conclude that the transfers to ______________________________________ that would (name of person described in Section 21380 of the Probate Code) be made by the instrument are not the product of fraud or undue influence. ____________________________ __________________'' (Name of Attorney) (Date) (b) An attorney whose written engagement, signed by the transferor, is expressly limited solely to compliance with the requirements of this section, shall not be considered to otherwise represent the transferor as a client. (c) An attorney who drafts an instrument can review and certify the same instrument pursuant to this section, but only as to a gift to a care custodian. In all other circumstances, an attorney who drafts an instrument may not review and certify the instrument. (d) If the certificate is prepared by an attorney other than the attorney who drafted the instrument that is under review, a copy of the signed certification shall be provided to the drafting attorney. 21386. If a gift fails under this part, the instrument making the gift shall operate as if the beneficiary had predeceased the transferor without spouse, domestic partner, or issue. 21388. (a) A person is not liable for transferring property pursuant to an instrument that is subject to the presumption created under this part, unless the person is served with notice, prior to transferring the property, that the instrument has been contested under this part. (b) A person who is served with notice that an instrument has been contested under this part is not liable for failing to transfer property pursuant to the instrument, unless the person is served with notice that the validity of the transfer has been conclusively determined by a court. 21390. This part applies notwithstanding a contrary provision in an instrument. 21392. (a) This part shall apply to instruments that become irrevocable on or after September 1, 1993. For the purposes of this section, an instrument that is otherwise revocable or amendable shall be deemed to be irrevocable if  ,  on September 1, 1993, the transferor by reason of incapacity was unable to change the disposition of the transferor's property and did not regain capacity before the date of the transferor's death.  (b) Nothing in this part precludes an action to contest a donative transfer under other applicable law.   (b) It is the intent of the Legislature that this part supplement the common law on undue influence, without superseding or interfering in the operation of that law. Nothing in this part precludes an action to contest a donative transfer under the common law or under any other applicable law. This subdivision is declarative of existing law.  ____ CORRECTIONS Text--Page 10. ____