California SB 105: Donative Transfers Restrictions

In 1993, responding to reports of a Southern California attorney who had drafted estate plans for his elderly clients that included large multi-million dollar gifts to himself, the California Legislature enacted the Donative Transfer Restriction Statute.  This legislation created a statutory presumption that donative gifts to the drafter of the document are the result of menace, duress, fraud or undue influence.  In 1997, responding to reports that caregivers were taking financial advantage of incapacitated seniors, this presumption was expanded to include gifts from dependent adults to the care custodians (caregivers).

In 2006, in Bernard v. Foley (2006) 39 Cal.4^th 794 [enhanced version available to lexis.com subscribers /  unenhanced version available from lexisONE Free Case Law], the California Supreme Court invalidated donative gifts to friends of a dependent adult who had become her caregivers toward the end of her life.  While the majority in Foley agreed that the gift recipients were caregivers who were subject to the presumption of invalidity and had failed to overcome that presumption, the Chief Justice, in his concurring opinion, invited the Legislature to make an exception to the presumption of invalidity for friends.  That same year, the Legislature directed the California Law Revision Commission ("CLRC") to study the issue and make recommendations.  On October 2008, the CLRC recommended that the Donative Transfer Restriction Statute be amended so that volunteer caregivers, such as friends, be excluded from the definition of "care custodian."  SB 105 incorporates most of the CLRC's recommendations with some changes.

The bill seeks to exclude genuine friends from the definition of care custodian but still protect dependent adults from those would might prey on them.  The definition of "care custodian" is revised to focus on two things: lack of pay and time period.  "Care Custodian" excludes those who provide services without pay as long as the care giver has a personal relationship with the dependent adult that began: (1) at least 90 days before services were provided; (b) at least six months before the dependent adult's death; and (c) if the dependent adult was admitted to hospice care, before the dependent adult was admitted to hospice care.  The rationale is that a personal relationship that pre-dates that provision of services by a time period of at least 90 days is more likely to be genuine.  The definition of "health and social services" is amended to mean "services provided to a dependent adult because of that person's dependent condition" distinguishing between routine social relations between friends and the social services provided to dependent adults as a result of their dependent condition.

The bill addresses the timing of the care custodian presumption by expressly stating that the presumption applies to a donative instrument that is executed during the period in which the care custodian provides services to the transferor or within 90 days before or after that period.

The bill limits the statutory presumption to cover only fraud and undue influence (eliminating any presumption of menace or duress).  It retains the clear and convincing evidence standard for rebuttal of the statutory presumption.

The bill also balances the need to protect dependent adults from financial abuse with the need to allow legally competent adults to make testamentary gifts freely.  It changes the definition of "dependent adult" to use an individualized functional test, essentially based on either the standard for appointment of a conservator drawn from Probate Code Section 1801, or deficits in mental functions under Probate Code Section 811.  The definition is bifurcated based on age: 65 or older and 64 or younger.  For those who are 65 or older: a "dependent adult" is someone who has "difficulty managing his/her own financial resources or resisting fraud or undue influence.  For those who are 64 or younger, a "dependent adult" is some who has "substantial difficulty managing his/her own financial resources or resisting fraud or undue influence."

Currently, an otherwise invalid gift can be saved from the statutory presumption if an "independent attorney" has reviewed the donative gift and, counsels the transferor, and then certifies that the gift is not the product of menace, duress, fraud, or undue influence.  The bill would define "independent attorney."  This provision was enacted partly in response to the Court of Appeal decision in Estate of Winans (2010) 183 Cal.App.4^th 102 [enhanced version / unenhanced version], in which the Court questioned whether an attorney who was named as executor in the will had too much of a financial interest to "independently" evaluate the validity of a gift made by the will.  "Independent attorney" would mean an attorney who has no relations with the beneficiary and who would not be appointed as a fiduciary or receive any pecuniary benefit as a result of the operation of the instrument containing the donative transfer.  Additionally, Winans addressed some issues with the content of the counseling the attorney had to provide and the degree of confidentiality required.  The bill adds some refinements to the counseling language.  The bill would also allow the drafting attorney to conduct the "independent attorney" review of a gift, but only as to a gift to a care custodian, provided that the attorney has no interest in the beneficiary.

The bill would also increase the value of a small gift that is exempt from the restrictions on donative transfers from $3,000 to $5,000.

The California Supreme Court has stated that the statute "supplements" the common law and does not supersede it.  See Bernard v. Foley (2006) 39 Cal.4^th 794, 800; Rice v. Clark (2002) 28 Cal.4^th 89, 97 [enhanced version / unenhanced version]. However, to ensure that this is clear, the bill has a provision making clear that the statute does not preclude any other available remedy, including the common law on undue influence.

Finally, the bill would apply only to gifts that become irrevocable on or after January 1, 2011.  Instruments that became irrevocable before January 1, 2011 would continue to be governed by the former law.  That means that it would apply to instruments that have been drafted before January 1, 2011.