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NOTICE OF PROPOSED ACTION BY TRUSTEE
LEGISLATIVE PROPOSAL (T&E-2016-06)
TO: Office of Governmental Affairs
FROM: Yvonne A. Ascher, Member of the Executive Committee, Trusts and Estates
Section
DATE: June 25, 2015
RE: Proposal to Amend Probate Code Sections 16501 and 16502 (Notice of Proposed
Action by Trustee)
SECTION ACTION AND CONTACT(S):
Date of Approval by Section Executive Committee: September 14, 2014
Approval vote: For 31; Against 0; Abstain 0
Contact:
Yvonne A. Ascher
Law Office of Yvonne A. Ascher
444 Pearl Street A1
Monterey, CA 93940
Phone: (831) 641-9019
Fax: (831) 641-9018
Section Legislative Co-Chair:
Gina L. Lera
Lera Tiberini PC
455 Capitol Mall, Suite 350
Sacramento, CA 95814
Phone: (916) 403-5180
Fax: (916) 403-5190
SUMMARY OF PROPOSAL
INTRODUCTION
Probate Code sections 16500 et seq. permit a trustee, in specified situations, to notify the
beneficiaries of a trust of a proposed course of action and obtain their prior consent, either
directly by a beneficiary’s written consent or implicitly as a result of a beneficiary’s failure to
timely object.
TRUSTS & ESTATES SECTION
THE STATE BAR OF CALIFORNIA
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Such a “Notice of Proposed Action” (NOPA) procedure is intended to promote efficient
administration of trusts, encourage open communication between trustees and beneficiaries, and
to provide trustees with a mechanism for obtaining the beneficiaries’ consent (directly or by
implication) prior to undertaking a course of action. Utilization of the procedure allows a trustee
to confidently undertake a course of action without having to incur the expense and possible
delay associated with a court hearing on the matter.
The statute was originally drafted to mirror the existing probate NOPA procedure.
(Probate Code section 10500). Limitations that apply in the probate area (Probate Code section
10501) are duplicated in the statute applicable to trust administrations. (Probate Code section
15501).
The current NOPA procedure for trust administrations requires a notice period of 45
days, during which a beneficiary may object to the proposed course of action. (Probate Code
section 16502). Absent a formal objection during that period, the beneficiary is deemed to have
consented to the proposed course of action. All that is required to object is that a box be checked
and the notice returned to the trustee.
Under current law, the trust NOPA procedure may not be used to obtain approval of a
proposed action that involves a distribution to the trust beneficiaries. The Executive Committee
of the Trusts and Estates Section (TEXCOM) believes that an amendment to Probate Code
section 16501 that removes the current prohibition pertaining to distributions would further
achieve the original purpose of the statute without diminishing a beneficiary’s rights to object or
diluting a trustee’s fiduciary duties.
The proposed change to the statute would dramatically increase its usefulness and
enhance the ability of trustees to efficiently administer trusts in California. Under current law,
unless the trustee obtains the affirmative written approval by every beneficiary prior to a
proposed plan of distribution, in order to be ensured that no beneficiary can later object to a
distribution, a trustee is required to file a petition with the probate court seeking approval of a
proposed distribution. Presently, no other method currently exists to reliably ensure that there
are no beneficiary objections prior to such a distribution absent either obtaining affirmative
consent or a court order. In most cases, no objection to the petition is received. Thus, such
petitions unnecessarily strain the resources of California’s over-burdened court system.
Although in many trust administrations, receiving the affirmative consent of all interested
parties to a proposed distribution may be possible, there are situations in which securing such
consents is not cost effective or practical, such as when the trust has numerous beneficiaries, or
in situations where a beneficiary has such a minor interest that getting him or her to respond is
problematic.
In addition to removing the prohibition pertaining to distributions, the reference to
“discharge” should also be removed from the current statue. The “discharge” prohibition was
included in the initial legislation, which, as stated above, mirrored the probate statutes. The
concept of “discharging” a trustee is not applicable to trust administrations and therefore should
be deleted.
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Furthermore, TEXCOM believes the current notice period of 45 days has the unintended
effect of making the NOPA procedure overly burdensome since current law requires only 30
days notice for a hearing on a petition pertaining to the same matters. Additionally, having
inconsistent periods in which a beneficiary must respond to a proposed course of action by a
trustee creates potential confusion among both fiduciaries and beneficiaries.
The following provides a detailed explanation of the proposed amendments to the
statutes.
Removing the NOPA prohibition pertaining to “preliminary and final distributions and
discharge”
The proposed amended statute would remove the current prohibition against using the
NOPA procedure with respect to “preliminary and final distributions and discharge.” (Probate
Code section 16501(d)(4)). Distributions are applicable to every trust administration and thus
permitting a NOPA to be utilized with respect to such transactions will greatly enhance the
usefulness of the statute and promote efficient administration of trusts in California.
The original NOPA statute was designed to mirror the statute applicable in probate
administrations. However, probate administrations are inherently different from trust
administrations. Most individuals create a revocable “Living Trust,” increasingly the most
popular method for providing for the disposition of one’s assets on death, specifically to avoid
the burdens of a probate administration. In creating such trusts, the settlor intentionally wishes
to authorize the trustee to administer his or her trust estate without court involvement, absent a
dispute. Primarily, the settlor wishes to avoid the cost and time delays associated with having to
seek court approval for many routine administrative actions, as is required in probate matters.
Every trust administration involves making distributions. It is a routine aspect of a trust
administration. Expanding the scope of the statute to allow a trustee to use a NOPA procedure in
conjunction with distribution matters would increase the efficiency of a trust administration
without diminishing any rights or protections currently afforded beneficiaries. Such a procedure
would allow trustees to easily communicate proposed distribution plans to beneficiaries and seek
their consent, whether expressed directly by written consent, or indirectly by failure to object,
without having to resort to the more costly and time consuming option of seeking court approval
of the proposed distribution plan.
It should be noted that no changes are proposed to the statute’s current provisions that
address how a beneficiary may register an objection to the proposed action. A beneficiary can
easily object to the proposed course of action. For example, the beneficiary need not state why
he or she objects, but may merely check a box and return the form to the trustee.
In addition to excluding distributions from the NOPA procedure, Probate Code section
16501(d)(4) also excludes obtaining a “discharge” of the trustee from the procedure. TEXCOM
proposes that this reference be removed as it has no meaningful application in the trust
administration context. There is no procedure in trust administration to “discharge” a trustee
similar to the discharge of a personal representative in a probate administration. In probate, the
discharge of a personal representative is required under Probate Code section 12550 (or in some
cases, section 12551) in order to fully terminate the personal representative’s responsibilities. In
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trust administrations, a trustee is relieved of his or her duties when the trust is fully distributed
and no further action is required. There is no formal procedure or consent of beneficiaries
required for the cessation of the trustee’s duties. The deletion of “discharge” from the NOPA
procedure does not result in a trustee being able to use the NOPA procedure to obtain a release
from liability. The prohibition in the statute against the use of such a procedure to approve
accountings (Probate Code section 16501(d)(3)) and transactions involving “claims, actions and
proceedings…against the trustee” (Probate Code section 16501(d)(9)) would continue to ensure
that a trustee can not use NOPA for such purposes.
Lastly, Section 817 of the Uniform Trust Code allows for trust distributions to be made
with a similar notice procedure. Thus, removing the prohibition in the California NOPA statute
with respect to distributions, as proposed by this amendment, serves to align the administration
of California trusts with those being administered in jurisdictions that have adopted the Uniform
Trust Code.
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In summary, by expanding the scope of the statute to allow the NOPA procedure to be
used for trust distribution matters, the proposed amendment to the statute would increase the
efficiency of trust administrations, enhance communication between trustees and beneficiaries,
and reduce the burden on our courts, without diminishing any rights or protections currently
afforded beneficiaries.
Shortening Notice Period from 45 days to 30 days
The notice period for a trustee’s petition for instructions brought under Probate Code
section 17200 is 30 days. However, if a trustee uses the NOPA procedure to communicate a
proposed course of action to a beneficiary, the notice period is 45 days. Nowhere else in the
Probate Code pertaining to the administration of trusts is a 45 day notice period required.
It should be noted that the timeframe for a NOPA in a probate matter is only 15 days.
This is the same timeframe applicable to most hearings in probate matters.
Not only may a trustee presently seek court approval of a proposed action with only a 30
day notice requirement, but in order to object the beneficiary must file a response to the petition
stating his or her reasons for objecting. To object to a NOPA, all that is required is for a
beneficiary to check a box and return the objection to the trustee. TEXCOM believes there is no
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Uniform Trust Code section 817 provides as follows:
“(a) Upon termination or partial termination of a trust, the trustee may send to the beneficiaries a proposal for
distribution. The right of any beneficiary to object to the proposed distribution terminates if the beneficiary does not
notify the trustee of an objection within 30 days after the proposal was sent but only if the proposal informed the
beneficiary of the right to object and of the time allowed for objection.
(b) Upon the occurrence of an event terminating or partially terminating a trust, the trustee shall proceed
expeditiously to distribute the trust property to the persons entitled to it, subject to the right of the trustee to retain a
reasonable reserve for the payment of debts, expenses, and taxes.
(c) A release by a beneficiary of a trustee from liability for breach of trust is invalid to the extent:
(1) it was induced by improper conduct of the trustee; or
(2) the beneficiary, at the time of the release, did not know of the beneficiary's rights or of the material facts relating
to the breach.”
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rationale for granting a beneficiary a longer period of time to check a box than is required to file
a formal response with a court, when the underlying proposed course of action is the same.
Having consistent time periods applicable to all trust administration matters would also
serve to ensure that all parties are aware of the applicable timeframe requirements in which they
must respond, thereby avoiding inadvertent mistakes. Moreover, no public interest is served by
mandating the current longer notice period for the trust NOPA, especially as a shorter notice
period is applicable for court matters involving trusts. To have a different and longer time period
for actions not involving the courts creates inconsistency, confusion, and does not further the
orderly administration of trusts.
Furthermore, the extended notice period required under the current statute prevents the
trustee from utilizing this procedure in situations that are time sensitive, such as selling real
estate, executing leases, or refinancing property. Thus, in such situations, a trustee might elect to
file an action with the court in order to use the shorter notice period compared to the NOPA
procedure. Such petitions would be unnecessary if the notice periods were consistent.
The longer notice period reduces the effectiveness of the NOPA statutes pertaining to
trusts and diminishes the orderly administration of trusts in California. By increasing the
usefulness and effectiveness of the statute, the burden on the courts would be reduced, thereby
allowing limited judicial resources to be allocated more efficiently.
HISTORY:
TEXCOM is not aware of any prior legislative proposals on this topic.
PENDING LITIGATION:
None known.
LIKELY SUPPORT AND OPPOSITION:
TEXCOM supports this legislation.
There is no known opposition.
FISCAL IMPACT:
No anticipated fiscal impact.
GERMANENESS:
This proposal requires the special knowledge, training, experience and technical expertise
of the members of TEXCOM because it relates to estate administration matters which are the
special purview of TEXCOM.
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DISCLAIMER:
This position is only that of the Trusts and Estates Section of the State Bar of California.
This position has not been adopted by either the State Bar’s Board of Trustees or overall
membership, and is not to be construed as representing the position of the State Bar of
California.
Membership in the Trusts and Estates Section is voluntary and funding for section
activities, including all legislative activities, is obtained entirely from voluntary sources.
TEXT OF PROPOSAL:
SECTION 1. Section 16501 of the Probate Code is amended to read:
16501. Mailing notice of proposed action by trustee; consent to proposed action; copies of
notice; actions in which notice prohibited
(a) The trustee who elects to provide notice pursuant to this chapter shall mail notice of
the proposed action to each of the following:
(1) A beneficiary who is receiving, or is entitled to receive, income under the trust,
including a beneficiary who is entitled to receive income at the discretion of the trustee.
(2) A beneficiary who would receive a distribution of the principal if the trust were
terminated at the time the notice is given.
(b) Notice of proposed action is not required to be given to a person who consents in
writing to the proposed action. The consent may be executed at any time before or after the
proposed action is taken.
(c) A trustee is not required to provide a copy of the notice of proposed action to a
beneficiary who is known to the trustee but who cannot be located by the trustee after reasonable
diligence or who is unknown to the trustee.
(d) Notwithstanding any other provision of this chapter, the trustee may not use a notice
of proposed action in any of the following actions:
(1) Allowance of the trustee’s compensation.
(2) Allowance of compensation of the attorney for the trustee.
(3) Settlement of accounts.
(4) Preliminary and final distributions and discharge.
(5)(4) Sale of property of the trust to the trustee or to the attorney for the trustee.
(6)(5) Exchange of property of the trust for property of the trustee or for property of the
attorney for the trustee.
(7)(6) Grant of an option to purchase property of the trust to the trustee or to the attorney
for the trustee.
(8)(7) Allowance, payment, or compromise of a claim of the trustee, or the attorney for
the trustee, against the trust.
(9)(8) Compromise or settlement of a claim, action, or proceeding by the trust against the
trustee or against the attorney for the trust.
(10)(9) Extension, renewal, or modification of the terms of a debt or other obligation of
the trustee, or the attorney for the trustee, owing to or in favor of the trust.
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SEC. 2. Section 16502 of the Probate Code is amended to read:
16502 - Contents of Notice.
The notice of proposed action shall state that it is given pursuant to this section and shall include
all of the following:
(a) The name and mailing address of the trustee.
(b) The name and telephone number of a person who may be contacted for additional
information.
(c) A description of the action proposed to be taken and an explanation of the reasons for
the action.
(d) The time within which objections to the proposed action can be made, which shall be
at least 4530 days from the mailing of the notice of proposed action.
(e) The date on or after which the proposed action may be taken or is effective.
