Existing law creates a presumption of fraud or undue influence, under certain circumstances, for any instrument that makes a donative transfer to specified persons, including, among others, a person in a fiduciary relationship with the transferor who transcribed the instrument or caused it to be transcribed.

This bill would recast this presumption to apply to a donative transfer to a person who transcribed the instrument or caused it to be transcribed and who was in a fiduciary relationship with the transferor when the instrument was transcribed.

Existing law creates exceptions to presumptions of fraud or undue influence for gifts where the donative instrument is reviewed by an independent attorney who counsels the transferor, as specified, about the nature of the transfer. Existing law specifies how gifts operate if they fail under the provisions providing presumptions of fraud or undue influence for donative transfers. Existing case law construes the term donative transfer to include, in addition to gifts, a transfer for inadequate or unfair consideration.

This bill would replace the term gift with the term donative transfer for purposes of these provisions.

Existing law states the intent of the Legislature that the above-referenced provisions regarding these presumptions supplement the common law of undue influence.

This bill would state that it is the intent of the Legislature that these rules also supplement the common law of fraud.

Existing law creates a presumption of fraud or undue influence, under certain circumstances, for any instrument that makes a donative transfer to specified persons, including, among others, a person in a fiduciary relationship with the transferor who transcribed the instrument or caused it to be transcribed.

This bill would recast this presumption to apply to a donative transfer to a person who transcribed the instrument or caused it to be transcribed and who was in a fiduciary relationship with the transferor when the instrument was transcribed.

Existing law creates exceptions to presumptions of fraud or undue influence for gifts where the donative instrument is reviewed by an independent attorney who counsels the transferor, as specified, about the nature of the transfer. Existing law specifies how gifts operate if they fail under the provisions providing presumptions of fraud or undue influence for donative transfers. Existing case law construes the term donative transfer to include, in addition to gifts, a transfer for inadequate or unfair consideration.

This bill would replace the term gift with the term donative transfer for purposes of these provisions.

Existing law states the intent of the Legislature that the above-referenced provisions regarding these presumptions supplement the common law of undue influence.

This bill would state that it is the intent of the Legislature that these rules also supplement the common law of fraud.

Existing law creates a presumption of fraud or undue influence, under certain circumstances, for any instrument that makes a donative transfer to specified persons, including, among others, a person in a fiduciary relationship with the transferor who transcribed the instrument or caused it to be transcribed.

This bill would recast this presumption to apply to a donative transfer to a person who transcribed the instrument or caused it to be transcribed and who was in a fiduciary relationship with the transferor when the instrument was transcribed.

Existing law creates exceptions to presumptions of fraud or undue influence for gifts where the donative instrument is reviewed by an independent attorney who counsels the transferor, as specified, about the nature of the transfer. Existing law specifies how gifts operate if they fail under the provisions providing presumptions of fraud or undue influence for donative transfers. Existing caselaw construes the term donative transfer to include, in addition to gifts, a transfer for inadequate or unfair consideration.

This bill would replace the term gift with the term donative transfer for purposes of these provisions.

Existing law states the intent of the Legislature that the above-referenced provisions regarding these presumptions supplement the common law of undue influence.

This bill would state that it is the intent of the Legislature that these rules also supplement the common law of fraud.

Date of Hearing: June 13, 2017

ASSEMBLY COMMITTEE ON JUDICIARY

Mark Stone, Chair

SBPCA Bill Id:SB 153

Author:(Anderson) – As Introduced Ver:January 18, 2017

Proposed Consent

SENATE VOTE: 36-0

SUBJECT: Trusts and Estates: donative transfers

KEY ISSUE: SHOULD THE STATUTORY PRESUMPTIve disqualification of DONATIVE TRANSFERS TO THOSE WHO ARE LIKELY TO HAVE INAPPROPRIATELY INFLUENCED THE TRANSFER BE REVISED TO MINIMIZE AMBIGUITIES and better protect against FRAUD and undue influence?

SYNOPSIS

In 1993, in response to an attorney in Southern California who had drafted wills for elderly clients that included large gifts to himself, his family, and his business partners, the Legislature established the Donative Transfer Restriction Statute, which created a statutory presumption that donative gifts to the drafter of the document are the result of menace, duress, fraud, or undue influence. (AB 21 (Umberg), Chap. 293, Stats. 1993.) The presumption was expanded in 1997 to include gifts from dependent adults to their care custodians and revised again in 2010. (AB 1172 (Kaloogian), Chap. 724, Stats. 1997; SB 105 (Harman), Chap. 620, Stats. 2010.)

This bill, sponsored by the Trusts & Estates Section of the State Bar, updates the presumption against certain donative transfers in three ways. It eliminates any potential ambiguity stemming from the codes seemingly interchangeable use of the terms “donative transfer” and “gift,” clarifies that the presumptive disqualification due to fraud or undue influence of a donative transfer to a person in a fiduciary relationship with the donor who transcribes the donative instrument applies if the fiduciary relationship exists at the time the instrument was transcribed, and adds legislative intent that the statutory restrictions on donative transfers are intended to supplement and not supplant the common law on fraud, in addition to undue influence. There is no opposition to this bill.

SUMMARY: Updates the provisions regarding presumptive disqualification of donative transfers to certain individuals where fraud or undue influence is likely. Specifically, this bill:

1. Clarifies that the presumptive disqualification due to fraud or undue influence of a donative transfer to a person in a fiduciary relationship with the donor who transcribes the donative instrument applies if the fiduciary relationship exists at the time the instrument was transcribed.
2. Replaces the term “gift” with the term “donative transfer” with respect to presumptive disqualification of a donative transfer due to fraud or undue influence.
3. Adds to legislative intent that the presumptive disqualification of certain donative gifts is intended to supplement the common law on fraud, along with undue influence, without superseding or interfering in the operation of that law.

EXISTING LAW:

1. Presumptively invalidates any provision of an instrument that makes a donative transfer to certain disqualified beneficiaries. Disqualified beneficiaries are:
   1. The person who drafted the instrument;
   2. A person in a fiduciary relationship with the transferor who transcribed the instrument or caused it to be transcribed;
   3. A care custodian of the transferor, who was a dependent adult, but only when the instrument was completed while the care custodian was providing care for the transferor or within 90 days of then;
   4. A relative within the third degree of any of the above, or a cohabitant or employee of any of the above; and
   5. Any partner, shareholder, or employee of a law firm that drafted the document or had the above described fiduciary relationship.

Allows this presumption to be rebutted by clear and convincing evidence that the donative transfer was not the product of fraud or undue influence. Notwithstanding the ability to rebut the presumption, the presumption is conclusive if the donative transfer is to the person who drafted the donative instrument or to a person who is related to or associated with the drafter. (Probate Code Section 21380. Unless stated otherwise, all further statutory references are to that code.)

1. Exempts from 1), among other gifts, gifts to close relatives of the transferor and small gifts, defined as gifts valued at $5,000 or less if the estate is worth $150,000 or more. (Section 21383.)
2. Provides the statutory presumption in 1) does not apply if the donative instrument is reviewed by an independent attorney who counsels the transferor about the nature and consequence of the gift and certifies that the gift is not the product of fraud or undue influence. (Section 21384.)
3. Clarifies that the statutory presumption against certain donative transfers supplements the common law and is declarative of existing law. Provides that it is the intent of the Legislature that these code sections supplement the common law on undue influence, without superseding or interfering in the operation of that law. Provides that nothing in these sections precludes an action to contest a donative transfer under the common law or under any other applicable law. (Section 21392.)
4. Provides that if a gift fails as a result of a presumption of disqualification for a gift, the instrument making the gift operates as if the beneficiary had predeceased the transferor without a spouse, domestic partner, or issue. (Section 21386.)
5. Uses both the terms “gift” and “donative transfer” when referring to donative transfers subject to a presumption of disqualification. (Sections 21380 - 21392.)

FISCAL EFFECT: As currently in print this bill is keyed non-fiscal.

COMMENTS: In 1993, in response to an attorney in Southern California who had drafted wills for elderly clients that included large gifts to himself, his family, and his business partners, the Legislature established the Donative Transfer Restriction Statute, which created a statutory presumption that donative gifts to the drafter of the instrument are the result of menace, duress, fraud, or undue influence. (AB 21 (Umberg), Chap. 293, Stats. 1993.) The presumption was expanded in 1997 to include gifts from dependent adults to their care custodians and revised again in 2010. (AB 1172 (Kaloogian), Chap. 724, Stats. 1997; SB 105 (Harman), Chap. 620, Stats. 2010.)

This bill updates the presumption against certain donative transfers in three ways. First, it eliminates any potential ambiguity stemming from the codes seemingly interchangeable use of the terms “donative transfer” and “gift.” Second, it clarifies that the presumptive disqualification due to fraud or undue influence of a donative transfer to a person in a fiduciary relationship with the donor who transcribes the donative instrument applies only if the fiduciary relationship exists at the time the instrument was transcribed. Finally, the bill adds legislative intent that the statutory restrictions on donative transfers are intended to supplement and not supplant the common law on fraud, in addition to undue influence.

Recent Case Raises Questions About Meaning of the Term "Donative Transfer": A 2014 court of appeals case considered the phrase "donative transfer" and determined that the Legislature used the term to include not just gifts, which the court stated are transfers without any consideration at all, but also transfers for unfair or inadequate consideration. (Jenkins v. Teegarden (2014) 230 Cal. App. 4^th 1128, 1138-42.) While that statutory interpretation appears consistent with the legislative intent for the presumptive disqualification statutes, there is some remaining ambiguity since the statutes, while generally using the term “donative transfer," also use the terms “gift” interchangeably when describing the situations where the presumption does not apply, as well as when describing the effect of a failure to rebut the presumption. (See Sections 21384 and 21386.)

To address this inconsistency, the bill replaces the term "gift" with "donative transfer," which is used most frequently in the relevant sections and makes clear that the Legislature means to include not just gifts with no consideration exchanged, but also transfers with unfair or inadequate consideration exchanged under the presumption against donative transfers to certain beneficiaries who may be able to exercise under influence over the transfer. This change should eliminate any confusion as to the application of the presumption when a transfer is made for inadequate consideration.

Bill Clarifies When the Fiduciary Relationship Must Exist for a Transcriber of an Instrument to be Subject to Presumed Disqualification: This bill revises one of the existing presumptions of fraud or undue influence resulting when a fiduciary receives a donative transfer from the instrument he or she transcribed or caused to be transcribed. Currently, a person in a fiduciary relationship with the transferor who transcribed the instrument or caused it to be transcribed is presumptively disqualified from a donative transfer by way of that instrument. This bill clarifies that the presumptive disqualification is limited to a person who is in a fiduciary relationship with the transferor when the instrument is transcribed.

The Trusts & Estates Section of the State Bar asserts that the existing language contains grammatical ambiguities that may result in the statute being “construed as imposing the presumption when the fiduciary had no role in transcribing the instrument at all, which appears to be inconsistent with the Legislature’s intent for this statute. This proposal would eliminate the ambiguity and clarify that the presumption of fraud and undue influence arises when the fiduciary either transcribed the instrument in question or caused it to be transcribed.”

Legislative Intent Language on Common Law Expanded to include Fraud, in Addition to Undue Influence: Finally, this bill expressly adds the word “fraud” to legislative intent language regarding the applicability of common law. Currently, express legislative intent states that the statutory presumptive disqualification of donative gifts to certain beneficiaries is intended to supplement the common law on undue influence, without superseding or interfering with that law. This bill adds legislative intent language that the statutory presumptive disqualification of donative gifts to certain beneficiaries is intended to supplement the common law on fraud, as well as undue influence, without superseding or interfering with that law. The extension of the legislative intent to supplement and not supplant the common law on fraud is consistent with the purpose of the statutory presumptive on disqualification of transfers to certain beneficiaries – to specifically protect against fraud and undue influence in these instances.

REGISTERED SUPPORT / OPPOSITION:

Support

Trusts and Estates Section of the State Bar (sponsor)

Opposition

None on file

Analysis Prepared by: Leora Gershenzon / JUD. / (916) 319-2334

 CONSENT  

Bill No: SB 153

Author:

:

Vote:

SENATE JUDICIARY COMMITTEE: 6-0, 4/4/17

AYES: Jackson, Moorlach, Hertzberg, Monning, Stern, Wieckowski

NO VOTE RECORDED: Anderson

SUBJECT:

SOURCE: The Executive Committee of the Trusts and Estates Section of the State Bar of California

DIGEST: This bill rewords the existing presumption of fraud or undue influence for donative transfers to specified persons who are in a position with the transferor that would allow them to exercise improper sway over the donative transfer. This bill clarifies that the presumption of fraud and undue influence applies when the fiduciary transcribed the document. Additionally, this bill replaces the term “gift” with the term “donative transfer” for the purposes of these provisions, existing law uses the terms interchangeably, and states that it is the intent of the Legislature that these provisions also supplement the common law of fraud.”

ANALYSIS:

Existing law:

1. Invalidates presumptively any provision or provisions of an instrument that makes a donative transfer to certain disqualified beneficiaries. Disqualified beneficiaries include:
   1. The person who drafted the document;
   2. A person in a fiduciary relationship with the transferor who transcribed the instrument or caused it to be transcribed;
   3. A caretaker of the transferor when the instrument was completed while the caretaker was providing care for the transferor or within 90 days of the caretaker’s services beginning or ending;
   4. A relative within the third degree of any of the above, a cohabitant or employee of the transferor’s caretaker, drafter of the document, or a person in a fiduciary relationship with the transferor who transcribed or caused the document to be transcribed; or
   5. Any partner, shareholder, or employee of a law firm which drafted the document or had the above described fiduciary relationship. (Prob. Code Sec. 21380.)
2. Allows this presumption to be rebutted, by clear and convincing evidence, that the donative transfer was not the product of fraud or undue influence. Notwithstanding this ability to rebut, the presumption is conclusive if the donative transfer is to the person who drafted the donative instrument or to a person who is related to or associated with the drafter. (Prob. Code Sec. 21380(b),(c).)
3. Exempts a gift from being subject to the above described presumption if the transferring instrument is reviewed by an independent attorney who counsels the transferor about the nature and consequences of the intended transfer, without the presence of any heir or beneficiary. This independent attorney must attempt to determine if the intended transfer is the result of fraud or undue influence. The independent attorney must provide a certificate of independent review to the transferor, this certificate must be substantially similar to a form provided in Probate Code Section 21384. If this attorney did not draft the instrument under review, a copy of the certification must be provided to the drafting attorney. (Prob. Code Sec. 21384.)
4. States that if a gift fails under this presumption, the gift shall operate as if the beneficiary had predeceased the transferor without a spouse, domestic partner, or issue. (Prob. Code Sec. 21386.)
5. Uses both the terms “gift” and “donative transfer,” when referring to transfers affected by the above described presumption. (Prob. Code Secs. 21380, 21384, and 21386.)
6. States that it is the intent of the Legislature that these code sections supplement the common law on undue influence, without superseding or interfering in the operation of that law. (Prob. Code Sec. 21392.)

This bill:

1. Rewords the existing law in regards to the disqualification of a person in a fiduciary relationship, to highlight that any donative transfer to a fiduciary who transcribed the document or caused it to be transcribed is subject to this presumption.
2. Replaces all uses of the term “gift” in applicable code sections with the term “donative transfer.”
3. Adds that the above referenced code sections are meant to supplement the common law on fraud to existing legislative intent language.

Background

This bill clarifies any potential ambiguities stemming from the codes seemingly interchangeable use of “donative transfer” and “gift,” as well as the wording of Probate Code Section 21380(a)(2). The changes reflect the California Court of Appeals for the Fourth Appellate District’s discussion of legislative intent in Jenkins v. Teegarden, (2014) 230 Cal.App.4th 1128. This bill also adds fraud to legislative intent language found in Probate Code Section 21392(b).

Comments

Purpose of the bill. SB 153 remedies inconsistencies that have arisen in the statutory scheme at Probate Code Section 21380 et seq. as the result of recent case law. This scheme protects vulnerable members of society by creating a presumption of fraud or undue influence for “donative transfers” to certain people who might exercise improper authority over the transferor.

Potential for ambiguity resulting from recent court decision. Recent case law has established a definition of donative transfers that goes beyond the definition of gifts. The Executive Committee of the Trusts and Estates Section of the State Bar of California (TEXCOM), sponsor, believes this bill is needed to ensure inconsistencies do not develop in the enforcement of this statutory scheme as the result of this recent case law development.

In the case at issue, the California Court of Appeals for the Fourth Appellate District determines a gift typically means a “transfer without any consideration at all.” (Jenkins v. Teegarden, 230 Cal.App.4th 1128, 1139.) In their decision they write, “the Legislature selected the term ‘donative transfer’ because it wanted to exclude ‘transfers for fair and adequate consideration.’ [citation omitted] It follows that it intended ‘donative transfer’ to include transfers for unfair or inadequate consideration.” (Id. at 1141.)

In response to this decision, TEXCOM brought forward this proposal. The decision of the Appellate Court implies that “donative transfer” has a broader meaning than the term gift, as it also applies to transfers for unfair or inadequate consideration. This bill eliminates the current statutory scheme’s use of the terms interchangeably to ensure that applicable Probate Code sections apply to both gifts and transfers for unfair or inadequate consideration. This change seems to eliminate any confusion as to the application of the presumption of fraud or undue influence.

Alleged ambiguity in existing law. This bill rewrites Probate Code Section 21380(a)(2) to state, “a person who transcribed the instrument or caused it to be transcribed and who was in a fiduciary relationship with the transferor when the instrument was transcribed.” Existing law states, “a person in a fiduciary relationship with the transferor who transcribed the instrument or caused it to be transcribed.”

TEXCOM asserts that the existing language contains grammatical ambiguities that may result in the statute being “construed as imposing the presumption when the fiduciary had no role in transcribing the instrument at all, which appears to be inconsistent with the Legislature’s intent for this statute. This proposal eliminates the ambiguity and clarifies that the presumption of fraud and undue influence arises when the fiduciary either transcribed the instrument in question or caused it to be transcribed.”

Fraud intent language. Finally, this bill expressly adds the word “fraud” to Section 21392’s legislative intent language. This portion of existing law states that:

It is the intent of the Legislature that this part supplement the common law on undue influence, without superseding or interfering in the operation of that law. Nothing in this part precludes an action to contest a donative transfer under the common law or under any other applicable law.

This bill modifies this section to state “fraud and undue influence.” As the presumption raised by this statutory scheme is one of fraud and undue influence this seems to keep with the original intent of this statute.

FISCAL EFFECT: Appropriation: Fiscal Com.: Local:

SUPPORT: (Verified 4/6/17)

The Executive Committee of the Trusts and Estates Section of the State Bar of California (source)

OPPOSITION: (Verified 4/6/17)

None received

Prepared by: Marisa Shea / JUD. /

4/10/17 10:24:03

**** END ****

SENATE JUDICIARY COMMITTEE

Senator Hannah-Beth Jackson, Chair

2017-2018 Regular Session

Bill No: SB 153 (Author:Anderson)

Version: January 18, 2017

Hearing Date: April 4, 2017

Fiscal: No

Urgency: No

Consultant: MS

SUBJECT

Estates and trusts: donative transfers

DESCRIPTION

Existing law creates a presumption of fraud or undue influence for donative transfers to specified persons who are in a position with the transferor that would allow them to exercise improper sway over the donative transfer. The specified persons include, among others, the person in a fiduciary relationship with the transferor who transcribed the instrument or caused it to be transcribed. This bill would reword this presumption to clarify that the presumption of fraud and undue influence applies when the fiduciary transcribed the document. In these sections of code, existing law uses the terms “gift” and “donative transfer” interchangeably. This bill would replace the term “gift” with the term “donative transfers” for purposes of these provisions.

Existing law states the intent of the Legislature that the above-referenced provisions regarding these presumptions supplement the common law of undue influence. This bill would state that it is the intent of the Legislature that these rules also supplement the common law of fraud.

BACKGROUND

In 2014, the California Court of Appeal, Fourth Appellate District, interpreted the legislative intent behind then Probate Code Section 21350. At the time of this interpretation, Section 21350 had been repealed and replaced with Section 21380, which the Court deemed substantially similar to Section 21350. The Court of Appeal’s interpretation of this code section, in their decision, has led to concerns regarding potential ambiguities in existing Probate Code Sections 21384, 21386, 21389, and 21392 due to the interchangeable use of the terms “gift” and “donative transfer”. (Jenkins v. Teegarden, (2014) 230 Cal.App.4^th 1128, pp. 1141-1143.)

In 2009, SB 105 (Harman, Ch. 553, Stats. 2010) revised and recast certain provisions of the Probate Code related to restrictions on donative transfers to specified persons that become irrevocable on or after January 1, 2011. The bill established a rebuttable presumption of fraud or undue influence if the donative instrument makes a gift to specified persons, including, among others, a caregiver and the person who drafted the document. Additionally, it provided that the presumption may be rebutted by a preponderance of the evidence. Finally, SB 105 added intent language regarding the legislation supplementing the common law on undue influence. SB 105 implemented the recommendation of the California Law Revision Commission.

Prior to SB 105, the California Supreme Court in Bernard v. Foley (2006) 39 Cal. 4^th 794 dealt with the presumptive invalidity of donative transfers made by dependent adults to their caregivers. In a concurring opinion, the Chief Justice invited the Legislature to make an exception to the presumption of invalidity when the gift predates the date of the caregiving. This decision overruled two earlier decisions holding that a “care custodian” does not include a personal friend. (Estate of Kathryn McDowell (2004) 125 Cal. App. 4^th 659, 673-73; Estate of Dolores Davidson (2003) 113 Cal.App.4^th 1035, 1048-50.)

This bill seeks to clarify any potential ambiguities stemming from the codes seemingly interchangeable use of “donative transfer” and “gift,” as well as the wording of Probate Code Section 21380(a)(2). The proposed changes reflect the Court’s discussion of legislative intent in Jenkins v. Teegarden, (2014) 230 Cal.App.4^th 1128. This bill would also add fraud to legislative intent language found in Probate Code Section 21392(b).

CHANGES TO EXISTING LAW

Existing law presumptively invalidates any provision or provisions of an instrument that makes a donative transfer to certain disqualified beneficiaries. Disqualified beneficiaries include:

• the person who drafted the document;
• a person in a fiduciary relationship with the transferor who transcribed the instrument or caused it to be transcribed;
• a caretaker of the transferor when the instrument was completed while the caretaker was providing care for the transferor or within 90 days of the caretaker’s services beginning or ending;
• a relative within the third degree of any of the above, a cohabitant or employee of the transferor’s caretaker, drafter of the document, or a person in a fiduciary relationship with the transferor who transcribed or caused the document to be transcribed;
• any partner, shareholder, or employee of a law firm which drafted the document or had the above described fiduciary relationship. (Prob. Code Sec. 21380.)

Existing law allows this presumption to be rebutted, by clear and convincing evidence, that the donative transfer was not the product of fraud or undue influence. Notwithstanding this ability to rebut, the presumption is conclusive if the donative transfer is to the person who drafted the donative instrument or to a person who is related to or associated with the drafter. (Prob. Code Sec. 21380(b),(c).)

This bill would reword the existing law in regards to the disqualification of a person in a fiduciary relationship, to highlight that any donative transfer to a fiduciary who transcribed the document or caused it to be transcribed is subject to this presumption.

Existing law exempts a gift from being subject to the above described presumption if the transferring instrument is reviewed by an independent attorney who counsels the transferor about the nature and consequences of the intended transfer, without the presence of any heir or beneficiary. This independent attorney must attempt to determine if the intended transfer is the result of fraud or undue influence. The independent attorney must provide a certificate of independent review to the transferor, this certificate must be substantially similar to a form provided in Probate Code Section 21384. If this attorney did not draft the instrument under review, a copy of the certification must be provided to the drafting attorney. (Prob. Code Sec. 21384.)

Existing law states that if a gift fails under this presumption, the gift shall operate as if the beneficiary had predeceased the transferor without a spouse, domestic partner, or issue. (Prob. Code Sec. 21386.)

Existing law uses both the terms “gift” and “donative transfer,” when referring to transfers affected by the above described presumption. (Prob. Code Secs. 21380, 21384, and 21386.)

This bill would replace all uses of the term “gift” in applicable code sections with the term “donative transfer.”

Existing law states that it is the intent of the Legislature that these code sections supplement the common law on undue influence, without superseding or interfering in the operation of that law. (Prob. Code Sec. 21392.)

This bill would add that the above referenced code sections are meant to supplement the common law on fraud to existing legislative intent language.

COMMENT

1. Stated need for the bill

According to the author:

SB 153 would remedy inconsistencies that have arisen in the statutory scheme at Probate Code Section 21380 et seq. as the result of recent case law. This scheme protects vulnerable members of society by creating a presumption of fraud or undue influence for “donative transfers” to certain people who might exercise improper authority over the transferor.

1. Potential for ambiguity resulting from recent court decision

Existing law imposes a presumption of fraud or undue influence when certain types of transfers are made to individuals who are in a position to exercise improper sway over the transferor. (Prob. Code Sec. 21380 et seq.) This statutory scheme uses the terms “gift” and “donative transfer” interchangeably when describing the situations that cause the presumption to not apply, as well as when describing the effect of a failure to rebut the presumption. Recent case law has established a definition of donative transfers that goes beyond the definition of gifts. The Executive Committee of the Trusts and Estates Section of the State bar of California (TEXCOM), sponsor, believes this bill is needed to ensure inconsistencies do not develop in the enforcement of this statutory scheme as the result of this recent case law development.

In the case at issue, the California Court of Appeals for the Fourth Appellate District looks to a number of sources to provide a statutory interpretation of the statutory scheme that now begins with Probate Code Section 21380. They begin their discussion by finding the plain meaning of the terms “donative transfer” and “gift” to be ambiguous. They go on to determine a gift typically means a “transfer without any consideration at all.” (Jenkins v. Teegarden, 230 Cal.App.4th 1128, 1139.) Donative transfer appears more ambiguous, with the Court looking to the legislative history of the term to make a determination as to its intended meaning. In their decision they write, “the Legislature selected the term ‘donative transfer’ because it wanted to exclude ‘transfers for fair and adequate consideration.’ [citation omitted] It follows that it intended ‘donative transfer’ to include transfers for unfair or inadequate consideration.” (Id. at 1141.)

In response to this decision, TEXCOM brought forward this proposal. The decision of the Appellate Court implies that “donative transfer” has a broader meaning than the term gift, as it also applies to transfers for unfair or inadequate consideration. This bill would eliminate the current statutory scheme’s use of the terms interchangeably to ensure that applicable Probate Code sections apply to both gifts and transfers for unfair or inadequate consideration. This change would seem to eliminate any confusion as to the application of the presumption of fraud or undue influence.

1. Alleged ambiguity in existing law

This bill proposes to rewrite one of the existing presumptions of fraud or undue influence resulting when a fiduciary receives a donative transfer from the instrument they transcribed or caused to be transcribed. This bill would rewrite Probate Code Section 21380(a)(2) to state, “a person who transcribed the instrument or caused it to be transcribed and who was in a fiduciary relationship with the transferor when the instrument was transcribed.” Existing law states, “a person in a fiduciary relationship with the transferor who transcribed the instrument or caused it to be transcribed.”

TEXCOM asserts that the existing language contains grammatical ambiguities that may result in the statute being “construed as imposing the presumption when the fiduciary had no role in transcribing the instrument at all, which appears to be inconsistent with the Legislature’s intent for this statute. This proposal would eliminate the ambiguity and clarify that the presumption of fraud and undue influence arises when the fiduciary either transcribed the instrument in question or caused it to be transcribed.”

This potential ambiguity was brought to TEXCOM’s attention by practitioner complaints. TEXCOM reports that “TEXCOM is more likely to act on issues that arise as the result of a published case, TEXCOM acknowledges that practitioners must deal with arguments that arise from how a particular statute is worded, and TEXCOM understands that these arguments are often made in day-to-day practice when there is no published case on the issue.” This Committee knows of no published cases reflecting the concerns brought to TEXCOM’s attention regarding the purported ambiguities in Probate Code Section 21380(a)(2).

TEXCOM believes the ambiguity occurs in practice because there is common-law authority that finds the mere existence of a fiduciary relationship creates a presumption of undue influence. This stems from the Court’s decision in Strasberg v. Odyssey Group, Inc., which notes “when one of the parties in a fiduciary relationship obtains a possible benefit, equity raises a presumption against its validity and casts upon the party the burden of proving affirmatively its compliance with equitable requisites to overcome the presumption of invalidity.” (Stasberg v. Odyssey Group, Inc. (1996) 51 Cal.App.4^th 906, 920-21.) TEXCOM worries that the risk of misreading of Section 21380(a)(2) is greater because the ambiguity presented in this subsection aligns with an aspect of the common law. This presents an issue because this statutory scheme does not apply in all circumstances, but only in those where the presumption is triggered.

1. Fraud intent language

Finally, this bill would expressly add the word “fraud” to Section 21392’s legislative intent language. This portion of existing law states that:

It is the intent of the Legislature that this part supplement the common law on undue influence, without superseding or interfering in the operation of that law. Nothing in this part precludes an action to contest a donative transfer under the common law or under any other applicable law.

This bill proposes to modify this section to state “fraud and undue influence.” As the presumption raised by this statutory scheme is one of fraud and undue influence this seems to keep with the original intent of this statute.

Support: None Known

Opposition: None Known

HISTORY

Source: The Executive Committee of the Trusts and Estates Section of the State Bar of California

Related Pending Legislation: None known

Prior Legislation: SB 105 (Harman, Ch. 620, Stats. 2010) See background.

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