New Probate Laws: You Will Want to Read This… Trust Me
Another year has flown by and it appears our colleagues at the Executive Committee of the Trusts & Estates Section of the State Bar of California (“TEXCOM”) were quite busy in 2016 and 2017. Here’s your annual round up of five newly-chaptered laws that will go into effect in 2018 and will shape the legal practice of trust and estate litigation, planning and administration for years to come.
First up, a much-anticipated notice clarification for those litigators out there. Under current law, the notice provided under the notice of hearing for section 850 petitions fails to convey the seriousness of the proceeding. Although rights and claims of interested persons are being determined in the proceeding, the notice of hearing prescribed under current law fails to convey the import of the proceeding. For instance, the present notice of hearing states that the “notice does not require you to appear in court.” This leaves interested persons with serious due process rights violations because they do not realize that property they currently hold may be taken from them in a proceeding where their presence is not required. To remedy these concerns, the amendments add a new section 851, subdivision (c) which requires that a notice of hearing contain the following information:
(1) A description of the subject property sufficient to provide adequate notice to any party who may have an interest in the property. For real property, the notice shall state the street address or, if none, a description of the property’s location and assessor’s parcel number.
(2) If the petition seeks relief pursuant to Section 859, a description of the relief sought sufficient to provide adequate notice to the party against whom that relief is requested.
(3) A statement advising any person interested in the property that he or she may file a response to the petition.
As of the date of writing, there is not a Judicial Council form that includes this information, therefore, practitioners are advised to create their own notices of hearing that include the above language unless or until the Judicial Council creates a new form.
This supplemental notice provision dovetails nicely with the second clarification regarding commencement of discovery and the lack of summonses in most trust and estate litigation proceedings. Civil summonses not only provide recipients with adequate notice of the gravity of the proceedings, they also trigger the commencement of discovery under the Code of Civil Procedure. These new clarifications are especially relevant for those who regularly commence litigation in Department 14 of the Contra Costa County Superior Court, where current practice dictates that a civil summons be issued and served in those matters brought under Probate Code section 850 containing civil causes of action such as conversion or elder abuse.
Under Probate Code section 1000, except to the extent that the Probate Code provides applicable rules, the rules of practice in civil actions, including discovery proceedings, apply to and constitute the rules of practice under the Probate Code. However, under the Code of Civil Procedure, discovery may only commence after service of summons or appearance by the defendant. (Code Civ. Proc., §§ 2025.210(b), 2030.020(b), 2031.020(b), and 2033.020(b).) The instance where a summons is issued under the Probate Code, is where a will contestant files an objection to the probate of a will. Otherwise, practitioners are left without guidance on how to proceed. To remedy this confusion under Probate Code sections 851, 1000, and 17201, these amendments provide create new sections 851.1, 1000(b) and 17201.1, which all reflect each other and essentially state that “for purposes of determining when a petitioner in a proceeding under this code may commence discovery as to nonparties, the time periods set forth in the Civil Discovery Act (Title 4 (commencing with Section 2016.010) of Part 4 of the Code of Civil Procedure) shall apply, except that the time periods shall commence to run upon service of the petition and notice of hearing upon all parties entitled to notice.” Nothing in these new divisions shall either alter when a respondent in such a proceeding may commence discovery or increase the extent to which nonparties may be subject to discovery.
Third, Probate Code section 6300, which authorizes pour-over wills, previously required that the written trust instrument be executed concurrently with or before the pour-over will. The amendments to section 6300 now allow the decedent’s pour-over will to reference terms in a written trust instrument that is executed within 60 days after the will’s execution. While this amendment may not change the practice of executing a whole estate plan, it does provide wiggle room in case a notary is not around the day the will is witnessed and executed. According to TEXCOM, prior to the change, technical difficulties in arranging for a notary would result in defeating testamentary intent. Now that is not the case. Moreover, the amendments bring California law in line with other states.
Fourth, changes to Probate Code sections 15403 and 15404 make it easier to modify or terminate a trust. Revised section 15403 creates a modest expansion in the ability of consenting beneficiaries to modify or terminate an irrevocable trust with court approval. Under the prior rule, even if all beneficiaries consented, the court was precluded from terminating a trust if the trust was subject to a valid spendthrift provision limiting what a beneficiary could receive and when. Now, such a trust may be terminated with the consent of all beneficiaries where the court, in its discretion, determines that there is good cause to do so. The section also adds subsection (c), which authorizes the court to limit the class of beneficiaries whose consent is necessary under the rule, thereby harmonizing the section with mirrored language in section 15404. Revised section 15404, in turn, creates a private process for modifying or terminating a trust where the settlor and all beneficiaries consent by eliminating the requirement of court approval for such changes. Lastly, both revised sections adopt clarifying language, such as eliminating the word “compel” to describe a request to the court.
Lastly, the all important Uniform Principal and Income Act (“UPAIA”) has been amended to give trustees more discretion in how they characterize certain receipts from entities held in trust. (Prob. Code, § 16329 et seq.) Under UPAIA, a trustee is required to allocate money received from an entity either to principal (property titled or held under the trust) or income (money generated from the trust’s principal). This characterization in turn determined whether the assets are used for the benefit of income or remainder beneficiaries. Initially this amendment sought to clarify the term “capital asset” and move away from how “capital asset” was defined by the Internal Revenue Code. However, after some debate, the amendment recasts how a trustee is to determine whether a distribution is a return on capital and therefore allocated to principal rather than income. Instead of setting forth rigid definitions to characterize the return on capital, the amendments hand discretion back to the trustee by providing a multi-factor test by which the trustee makes the determination. This change is believed to better effectuate settlor intent while also holding the trustee accountable for the decision. The amendments are substantial enough to be worthy of an article in their own right, so it behooves us to say that attorneys and fiduciaries who administer trusts with income and remainder beneficiaries should spend some time reviewing the changes as they require more analysis than this summary update can provide.