SB 1910

Present law authorizes a will executed outside of this state to have the same force and effect as a will executed in this state if it was in compliance with the law of the testator's domicile or the state in which the will was executed. This bill clarif ies that such a will is sufficiently proved to be admitted to probate in this state if it is proved that the will could be admitted to probate (i) in the state where it was signed; (ii) under the law of the testator's domicile at the time of its execution ; or (iii) is a will containing the signatures of at least two attesting witnesses, a holographic will, or a paper writing written on or before February 15, 1941, that meets certain requirements. RIGHTS OF CHARITABLE ORGANIZATIONS Present law gives a charitable organization expressly designated to receive distributions under the terms of a charitable trust the same rights as a qualified beneficiary if the charitable organization would be a qualified beneficiary if such charitable organization were an individual beneficiary. A "qualified beneficiary"" means a beneficiary who, on the date the beneficiary's qualification is determined, (i) is a distributee or permissible distributee of trust income or principal; (ii) would be a distr ib utee or permissible distrubutee of trust income or principal if the trust terminated on that date; or (iii) would be a distributee or permissible distributee of trust income or principal if the interests of the distributees terminated on that date without causing the trust to terminate. This bill clarifies that a charitable organization that receives the same rights as a qualified beneficiary may receive notice and information about the trust, as prescribed by present law. The charitable organization may also participate in nonjudicial settlement agreements with respect to any matter involving the trust. RIGHTS AND PROTECTIONS OF A TRUSTEE Present law authorizes the trustee of a trust consisting of property having a total value of less than $100, 000 or for which the trustee's annual fee for administering the trust is 5% or more of the market value of the trust to, after notice to the quali fied beneficiaries, terminate the trust if the trustee determines that the value of the trust property is insufficient to justify the cost of administration. This bill raises the threshold to $250, 000. Present law provides that a trustee, trust advisor, or trust protector is entitled to be reimbursed out of the trust property for expenses that were properly incurred in the administration of the trust and expenses that were not properly incurred in the administration of the trust to the extent necessary to prevent unjust enrichment of the trust. This bill authorizes a trustee to pay properly incurred expenses directly from the trust estate. Present law treats a trustee, trust advisor, or trust protector who acts in accordance with the terms of a trust, an agreement of the qualified beneficiaries, or a court order as an excluded fiduciary. Instead of an agreement of the qualified beneficiar ies, this bill requires a trustee, trust advisor, or trust protector to act in accordance with a nonjudicial settlement agreement to be treated as an excluded fiduciary. Present law authorizes a trust to confer upon a person other than the settlor of a revocable trust the power to direct certain actions of the trustee upon agreement of the qualified beneficiaries. The trustee must act in accordance with an exercise of t hat power. This bill clarifies that such power may only be granted by the terms of the trust, a court order, or a nonjudicial settlement agreement. Present law authorizes a trust trustee to send a notice that the trust is terminating, in whole or in part, or seeking to be relieved from liability on such trustee's removal or resignation, to the grantor of a trust, if living; each qualified beneficiar y or their representative; all other trustees serving at that time, trust advisors, and trust protectors; and any other persons whom the trustee reasonably believes may also have an interest in the trust. Persons receiving the notice have 45 days to obje ct to the notice in writing. For the purpose of determining the date a notice was received, if confirmation of the date of receipt is not available, then this bill requires that the notice be presumed to have been received five business days after the date of mailing.. Further, this bill clarifies that any objection must identify the portion of the notice to which the person receiving the notice objects and the basis for the objection. This bill also authorizes objections to be withdrawn at any time in w ri ting. Present law authorizes a trustee, who has authority to invade the principal of a trust to make distributions to or for the benefit of one or more proper objects of the exercise of the power, to appoint principal, to instead exercise that authority by appo inting all or part of the principal of the trust in favor of a trustee of a second trust if the exercise of that authority does not reduce any income interest of any income beneficiary of certain trusts and is in favor of the proper objects of the exercis e of the power to appoint principal. This bill clarifies that the trustee may exercise the power to appoint principal to a second trust by modifying or restating the trust instrument. For the purposes of this provision, a ""second trust"" generally means an original trust after such modification or restatement, or a trust to which a distribution of property from an original trust is or may be made under this provision. However, the exercise of the power to appoint principal to a second trust by restatement or modification of the original trus t does not require the retitling of property titled to the original trust or a change in payable on death or beneficiary designation to the original trust. TRUSTEES ACTING IN A MANAGERIAL CAPACITY This bill provides that a trustee, trust advisor, or trust protector is not liable for any resulting loss or failure to maximize returns when acting in a managerial capacity with respect to a closely held business. However, this protection from liabilit y only applies if the trustee, trust advisor, or trust protector is an excluded fiduciary acting pursuant to the valid direction of a trust protector or trust advisor; acts in good faith; acts with the care that a person in a like position would believe i s appropriate; reasonably believes that the action is in the best interest of the trust; and does not act with improper motive. Further, this bill provides that a trustee, trust advisor, or trust protector is not liable to a beneficiary for any act or decision made in a managerial or controlling capacity with respect to a closely held business interest unless it does not comply w ith the above requirements. Courts are prohibited from determining that the trustee, trust advisor, or trust protector failed to meet the standard merely because the court would have made a different business decision. However, the court's authority to re view conduct or grant appropriate relief is not limited if the trustee, trust advisor, or trust protector's actions do not meet the above requirements. This bill clarifies that the liability protections described above apply regardless of whether the trustee, trust advisor, or trust protector receives compensation from the trust or business entity. However, such provisions do not alter the duties with respect to the investment in or ownership of a closely held business. CONFIDENTIAL INFORMATION FILED UNDER SEAL This bill authorizes confidential information related to trusts to be redacted or filed under seal without a prior court order if certain conditions are met. However, the trustee and qualified beneficiaries must consent to the redaction or filing under seal and complete, unredacted copies must be provided to the court in camera and to all qualified beneficiaries. As used in this paragraph, ""confidential information related to trusts"" includes (i) trust instruments, settlement agreements, modification a gr eements, trustee resolutions, inventories, accountings, and reports; (ii) the names and addresses of trust settlors, trustees, and beneficiaries; (iii) trust dispositive terms; (iv) corporate and company records relating to trusts; (v) personally identify ing information; and (vi) any other information the court deems confidential. This bill authorizes confidential information to be redacted or filed under seal if the underlying matter does not involve third parties; solely concerns the trustee and the qualified beneficiaries; and relates to matters involving the validity, construc tion, and administration of a trust. Unless the court orders otherwise, once confidential information is redacted or filed under seal in a matter, it must be redacted or filed under seal in all subsequent filings and orders. This bill clarifies that it does not reduce the power of any court to order the production of unredacted and complete copies of filings for cause shown. However, the existence of a compelling interest to have confidential information regarding the trust redacted or filed under seal must be presumed. In determining whether this presumption is overcome, the court may consider whether a public entity or official would benefit from secrecy, the information involves a matter of public concern, or the inform at ion is important to other litigation. FAMILY-OWNED NONCORPORATE ENTITIES The Excise Tax Law of 1999 imposes a tax on all persons doing business in this state equal to 6.5% of net earnings. However, there are many exemptions, including family-owned noncorporate entities. Present law defines ""family-owned"" in this context to mean an entity in which at least 95% of the ownership units of the entity are owned by members of the family. With respect to an individual, the following are such members of the family (i) an ancestor of such individual; (ii) the spouse or former spouse o f such individual; (iii) a lineal descendant of such individual, including legally adopted children, a lineal descendant of such individual's spouse, or of a parent of such individual; (iv) the spouse or former spouse of any lineal descendant; or (v) the estate or trust of a deceased individual who, while living, was any of the above. This bill, instead, defines ""family-owned"" to mean that at least 95% of the voting rights, capital interest, or profits of the entity are owned either by natural persons who are relatives or by trusts for the benefit of such relatives or by the estate of a deceased individual who was a relative while living. N atural persons are considered relatives, if, by blood or adoption, they are descended from a common ancestor and their relationship with each other is that of a first cousin or closer, or if they are a spouse or former spouse of any such person or a lineal descendant of a spouse or former spouse of any such person ."