Bill Text: CA AB1029 | 2013-2014 | Regular Session | Introduced

California Assembly Bill 1029 (Prior Session Legislation)

NOTE: There are more recent revisions of this legislation. Read Latest Draft

Bill Title: Trusts and estates: allocations of receipts.

Spectrum: Partisan Bill (Democrat 1-0)

Status: (Passed) 2013-08-13 - Chaptered by Secretary of State - Chapter 105, Statutes of 2013. [AB1029 Detail]

Download: California-2013-AB1029-Introduced.html

BILL NUMBER: AB 1029	INTRODUCED
	BILL TEXT


INTRODUCED BY   Assembly Member Maienschein

                        FEBRUARY 22, 2013

   An act to amend Section 16350 of the Probate Code, relating to
trusts and estates.


	LEGISLATIVE COUNSEL'S DIGEST


   AB 1029, as introduced, Maienschein. Trusts and estates:
allocations of receipts.
   Existing law regulates the administration of trusts and the
estates of decedents and, in this regard, establishes the Uniform
Principal and Income Act. Existing law defines "income" in this
regard and prescribes rules for determining the character of money
received from an entity. Existing law generally requires that money
received from an entity be allocated to income, but provides that
money received in total or partial liquidation of the entity is
allocated to principal. Existing law establishes rules for
determining whether money is received in partial liquidation,
including if the total amount of money and property received by all
owners, collectively, in a distribution or series of related
distributions is greater than 20% of the entity's gross assets, as
specified.
   This bill would revise and recast the requirements by which a
trustee is to determine whether money received from a distributing
entity is be treated as a partial liquidation. The bill would provide
that a trustee is not liable for any claim of improper allocation of
the receipt that is based on information that was not received or
actually known by the trustee as of the date of allocation, as
specified. The bill would also make various technical 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 16350 of the Probate Code is amended to read:
   16350.  (a) For the purposes of this section, "entity" means a
corporation, partnership, limited liability company, regulated
investment company, real estate investment trust, common trust fund,
or any other organization in which a trustee has an interest other
than a trust or decedent's estate to which Section 16351 applies, a
business or activity to which Section 16352 applies, or an
asset-backed security to which Section 16367 applies.
   (b) Except as otherwise provided in this section, a trustee shall
allocate to income money received from an entity.
   (c) A trustee shall allocate to principal the following receipts
from an entity:
   (1) Property other than money.
   (2) Money received in one distribution or a series of related
distributions in exchange for part or all of a trust's interest in
the entity.
   (3) Money received in total or partial liquidation of the entity.
   (4) Money received from an entity that is a regulated investment
company or a real estate investment trust if the money distributed is
a capital gain dividend for federal income tax purposes.
   (d) For purposes of paragraph (3) of subdivision  (c):

    (1)     Money is
received in partial liquidation (A) to the extent that the entity, at
or near the time of a distribution, indicates that it is a
distribution in partial liquidation, or (B) if the total amount of
money and property received by all owners, collectively, in a
distribution or series of related distributions is greater than 20
percent of the entity's gross assets, as shown by the entity's
yearend financial statements immediately preceding the initial
receipt. If that receipt is allocated   (c), money shall
be treated as received in partial liquidation to the extent the
amount received from the distributing entity is attributable to the
proceeds from a sale by the distributing entity, or by the
distributing entity's subsidiary or affiliate, of a capital asset as
defined in Section 1221 of the Internal Revenue Code. The following
shall apply to determine whether money is received in partial
liquidation:  
   (1) A trustee may rely without investigation on a written
statement made by the distributing entity regarding the source of the
receipt.  
   (2) A trustee may rely without investigation on any other
information that is actually known by the trustee regarding the
source of the receipt.  
   (3) With regard to each receipt from a distributing entity, if
within 30 days from the date of receipt the distributing entity
provides no written statement to the trustee regarding the source of
the receipt and the trustee has no actual knowledge regarding the
source of the receipt, then the following shall apply:  
   (A) The trustee shall have no duty to inquire or investigate
whether the receipt from the distributing entity is in partial
liquidation of the entity.  
   (B) If the receipt from the distributing entity is in excess of 10
percent of the value of the trust's interest in the distributing
entity, then the receipt shall be deemed to be received in partial
liquidation of the distributing entity, and the trustee shall
allocate all of the receipt to principal. For purposes of this
subparagraph, the value of the trust's interest in the distributing
entity shall be determined as follows:  
   (i) In the case of an interest that is a security regularly traded
on a public exchange or market, the closing price of the security on
the public exchange or market occurring on the last business day
before the date of the receipt.  
   (ii) In the case of an interest that is not a security regularly
traded on a public exchange or market, the value as set forth in the
most recent appraisal prepared by a professional appraiser of the
trust's interest in the distributing entity with a valuation date
within three years of the date of the receipt, if the appraised value
is actually known to the trustee without any duty of the trustee to
investigate the existence of the appraisal. The trustee shall have no
duty to obtain an appraisal nor shall the trustee have any liability
for relying upon an appraisal prepared by a professional appraiser.
The term "professional appraiser" shall refer to an appraiser who has
earned an appraisal designation for valuing the type of property
subject to the appraisal from a recognized professional appraiser
organization.  
   (iii) In the case of an interest that is not a security regularly
traded on a public exchange or market and for which there is no
appraisal meeting the requirements of clause (ii), the value of the
trust's interest in the distributing entity shall be the trust's
proportionate share of the distributing entity's net assets as shown
in the distributing entity's yearend financial statements immediately
preceding the receipt.  
   (iv) If the trust's interest in the distributing entity cannot be
valued under clause (i), (ii) or (iii), the federal cost basis of the
trust's interest in the distributing entity on the date immediately
before the date of the receipt.  
   (e) For purposes of subdivision (d), a written statement or other
information "regarding the source of the receipt" refers to a written
statement or other information indicating whether or not the receipt
is attributable to the proceeds from a sale by the distributing
entity, or by the distributing entity's subsidiary or affiliate, of a
capital asset as defined in Section 1221 of the Internal Revenue
Code.  
   (f) (1) If, within 60 days of the date of the receipt, a trustee
allocates a receipt to principal in accordance with subdivision (d),
or allocates a receipt to income because the receipt is not
determined to be in partial liquidation under subdivision (d), based
on information received or actually known by the trustee on the date
that is 30 days after the date of the receipt, the trustee shall not
be liable for any claim of improper allocation of a receipt which is
based on information that was not received or actually known by the
trustee within 30 days of the date of the receipt.  
   (2) If a trustee allocates a receipt to principal in accordance
with subdivision (d), or allocates a receipt to income because the
receipt is not determined to be in partial liquidation under
subdivision (d), more than 60 days after the date of receipt, and on
the date of allocating the receipt the trustee has neither received
information nor has any actual knowledge, without any duty to
investigate, of the source of the receipt, then the trustee shall not
be liable for any claim of improper allocation of the receipt which
is based on information that was not received or actually known by
the trustee as of the date of allocation. 
    (g)     (1)    
Notwithstanding anything to the contrary in subdivision (d), if the
receipt was allocated  between December 2, 2004, and 
the operative date of the act adding this sentence  
July 18, 2005  , a trustee shall not be liable for allocating
the receipt to income if the amount received by the trustee, when
considered together with the amount received by all owners,
collectively,  exceeds   exceeded  20
percent of the entity's gross assets, but the amount received by the
trustee  does   did  not exceed 20 percent
of the entity's gross assets.
   (2) Money is not received in partial liquidation, nor may it be
taken into account under  clause (B) of paragraph (1)
  subdivision (d)  , to the extent that it does not
exceed the amount of income tax that a trustee or beneficiary is
required to pay on taxable income of the entity that distributes the
money. 
   (e) A trustee may rely on a statement made by an entity about the
source or character of a distribution if the statement is made at or
near the time of distribution by the entity's board of directors or
other person or group of persons authorized to exercise powers to pay
money or transfer property comparable to those of a corporation's
board of directors.