BILL ANALYSIS SENATE JUDICIARY COMMITTEE Adam B. Schiff, Chairman 1999-2000 Regular Session AB 1051 A Assembly Member Kaloogian B As Amended June 24, 1999 Hearing Date: June 29, 1999 1 Probate Code 0 GMO:jt 5 1 {u SUBJECT u} Estates: Creditors' Claims and Community Assets in Trust {u DESCRIPTION u} This bill would expand creditors' rights to make claims against a decedent's estate. Further, it would establish a presumption that the transfer of community and quasi-community property to a revocable trust is an agreement of the spouses that the assets retain their character in aggregate for purposes of any division provided by the trust. {u BACKGROUND u} This is another bill sponsored by the Estate Planning and Probate Law Section of the State Bar. The provisions in the bill are intended to conform the affected sections of the Probate Code to changes made to the Code of Civil Procedure last year regarding the tolling of statutes of limitations as to decedents' estates, and to reinstate the presumption regarding transfers of community property to revocable trusts that was removed from an omnibus bill for unidentified reasons. {u CHANGES TO EXISTING LAW u} 1. {u Existing law u} authorizes spouses to make agreements regarding the division of community and quasi-community property on the death of either or both of them, and to (more) AB 1051 (Kaloogian) Page 2 apply the aggregate theory to this property in those agreements. {u This bill u} would establish a presumption that when spouses transfer property into a revocable trust, the property transferred retains its character in the aggregate unless otherwise specified in the trust agreement. 2. {u Existing law u} sets out the procedure for the administration of claims against the decedent's estate. {u This bill u} would eliminate a requirement that, in order to establish the personal administrator's liability for failure to notify the creditor of the administration of the estate, the creditor establish that his or her attorney had no actual knowledge of the administration of the estate. {u u} 3. {uUnder existing law u} , a creditor's claim against a decedent's estate must be filed within four months after the letters of administration were first issued, or within 60 days after notice of administration is given to the creditor, if notice is given at least 60 days prior to the expiration of the time specified in Code of Civil Procedure 366.2 [Probate Code Sec. 9100]. CCP Sec. 366.2 specifies that the statute of limitations for filing an action against a decedent, if the cause of action survives the decedent, is one year after the date of death, not the statute of limitations that would have otherwise applied (if the decedent were alive). Further, CCP Sec 366.2 specifies that this one-year statute of limitations shall not be tolled or extended unless expressly provided by the applicable Probate Code Sections relating to creditors' claims in the administration of estates, claims for payment under a revocable trust of a deceased settlor, and to no contest clauses. {u The bill u} would, as to those claims filed within 60 days of the notice of administration given to the creditor, eliminate the requirement that the notice be at least 60 days prior to the expiration of the one-year statute of limitations as provided in CCP Sec. 366.2 (one-year statute of limitations to file claims against a decedent or his/her estate). AB 1051 (Kaloogian) Page 3 4. The bill would make other technical amendments. {u COMMENT u} 1. {u Clean-up bill u} This bill, sponsored by the Estate Planning and Probate Law Section of the State Bar, would clarify changes made in the Family Code by last year's AB 2801 (Ch. 581, Stats. 1998) regarding inter-spousal agreements involving community and quasi-community property. It would also make some technical amendments in the Probate Code, as well as remove a redundancy in the requirement of proving actual knowledge by both attorney and client that the decedent's estate is being administered. There is no opposition to any of the provisions of this bill. 2. {u Expanding creditors' rights to file claims u} a. {u Establishing actual knowledge of creditor sufficient u} Under existing law, a creditor making a claim against a decedent's estate after the time for filing has passed must prove that the creditor and his or her attorney had no actual knowledge that the estate was being administered. [Probate Code Section 9053.] Existing law also imputes an attorney's knowledge to the client regardless of when the attorney had knowledge in relation to being retained by the client and the filing deadline regarding a late claim. [Probate Code Section 9103.] This bill would harmonize the two statutes and eliminate a redundancy. b. {u Last day for filing: one year from date of death, but no later than 60 days after notice of administration is given u} A creditor must, under existing law, file a claim against a decedent's estate within 4 months of the issuance of the letters of administration or within 60 days of the creditor's getting notice of administration of the AB 1051 (Kaloogian) Page 4 estate, if the notice is at least 60 days from expiration of the one-year statute of limitations under CCP 366.2. This means that currently, if a creditor is notified of the administration of the estate, for example, 90 days prior to one year of decedent's date of death, the creditor has 60 days to file a claim (this would end 30 days prior to the one-year statute expiring). If the creditor gets notice 30 days before expiration of the one-year statute, the creditor cannot file a claim, as the claims filing statute would bar him or her. In other words, the latest that a creditor can file a claim against a decedent's estate, under the combination of the Probate Code and the Code of Civil Procedure, is 60 days prior to expiration of one year of the date of death. This bill would eliminate the requirement that the notice of administration given to the creditor be at least 60 days prior to expiration of the one-year statute of limitations specified in Code of Civil Procedure 366.2. This would then accommodate the filing of a creditor's claim that could be made within the one-year statute of limitations, but for the fact that notice or actual knowledge of the administration of the estate is given only during the 60 days prior to the one-year-of-death date. Thus, the creditor could learn of the administration of the decedent's estate on day 364, and still file a claim because it would be within the one-year statute of limitations under CCP Sec. 366.2. If the creditor received notice of the administration after 4 months have passed since letters were issued to the personal representative, the creditor must, under this bill, file within 60 days of the day notice was given to him or her, and the filing date could not be beyond one year of the date of death. c. {u No tolling or extension of statutes of limitations, including CCP Sec 366.2 u} This bill would also clarify that a formal probate administration does not extend or toll statutes of limitations that would otherwise apply to a claim. Thus, the expiration of a statute of limitations on the type of claim could be used by the personal representative of a decedent's estate to reject a creditor's claim, assuming that the claim was filed AB 1051 (Kaloogian) Page 5 within the creditor claims filing statutes as specified in the Probate Code. If the claim was not filed within the creditor claims filing statutes, it would not matter when the statute of limitations on the claim itself expired or would expire. For example, a claim for a contract payment that became due one month before the decedent's death must be filed within one year of the date of death, even if the statute of limitations on a breach of contract action is four years. This claim must be filed within 4 months of the issuance of letters to the personal representative, or within 60 days from the date of notice to the creditor. 3. {u Transfer of community/quasi-community property into revocable trust u} Existing law authorizes inter-spousal agreements with regards to non-pro- rata division of their aggregate community and quasi-community property or on the basis of a division of each individual item or asset of each community or quasi-community property, or partly on each basis. [Probate Code Sections 100 and 101.] Also under existing law, community property and quasi-community property held in a revocable trust (as described in the Family Code) retain their character in the aggregate for purposes of division under the trust. To make consistent the Family Code and Probate Code sections governing the character of community and quasi-community property transferred into revocable trusts, this bill would create the presumption that the transfer of those assets into a revocable trust is an agreement that the assets retain their character in the aggregate for purposes of any division provided in the trust. The practical effect of this provision, besides clarification and consistency of the statutes, is that, where the assets to be distributed under the terms of the trust could have inherent but unrealized taxable income, the income would not be taxed immediately (i.e., upon death of one trustee) but only when the income is actually received by the surviving spouse. This is especially applicable to revocable trusts that split into the typical A/B trust arrangement upon the death of one AB 1051 (Kaloogian) Page 6 spouse. Support: None Known Opposition: None Known {u HISTORY u} Source: Estate Planning and Probate Law Section of the State Bar Related Pending Legislation: None Prior Legislation: AB 2801 (Committee on Judiciary, Escutia, Chair) Ch. 581 Stats. 1998 Prior Vote: Asm. Jud. (Ayes 12. Noes 0.) Asm. Flr. (Ayes 76. Noes 0) **************