With the legislature focused on the state's budget crisis, only a modest number of new bills were passed in the estate planning field for the year 2003. These changes in the law will probably not affect the wills or trusts of most individuals. Therefore, the following changes in the law are noted primarily for general interest and not for their immediate impact on most estate plans.

New "Certificate of Independent Review"

According to California Probate Code Section 21350, gifts in a will or trust to certain individuals are invalid unless subject to certain safeguards or exceptions. The people who are in this suspect class of individuals are:

1. The person who drafted the instrument.

2. A person who is related by blood or marriage to, is a co-habitant with, or is an employee of, the person who drafted the instrument.

3. Any partner or shareholder of any law partnership or law corporation in which the person described in paragraph 1 has an ownership interest, and any employee of such law partnership or law corporation.

4. Any person who has a fiduciary relationship with the transferor, including, but not limited to, a conservator or trustee, who transcribes the instrument or causes it to be transcribed.

5. A person who is related by blood or marriage to, is a co-habitant with, or is an employee of a person who is described in paragraph 4.

6. A care custodian of a dependent adult.

This law is designed to prevent persons who have a fiduciary or other close relationship with the transferor from taking advantage of their position and arranging to have themselves included as a beneficiary in a will or trust. Unfortunately, there have been too many cases in which individuals with this type of special relationship to the transferor have sought to enrich themselves by being included in the estate plan of the individual with whom they have the special relationship.

The law also recognizes certain exceptions to the ban on gifts to individuals in the suspect class of people. The exceptions are found at California Probate Code Section 21351. The exceptions are:

1. The transferor is related by blood or marriage to, is a co-habitant with, or is a registered domestic partner of the transferee or the person who drafted the instrument.

2. The instrument is reviewed by an independent attorney who counsels the client about the nature and consequences of the intended transfers, attempts to determine if the intended consequence is a result of fraud, menace, duress, or undue influence, and signs and delivers to the transferor an original certificate verifying the review and determination. The specific change in the law for 2003 is in the language suggested for the "Certificate of Independent Review". The language will now verify that the independent attorney has counseled a client on both the nature and consequences of the transfer to the individual in question. The language for this "Certificate of Independent Review" is now as follows:

CERTIFICATE OF INDEPENDENT REVIEW

I,__________, have reviewed ___________ and counseled my client, __________, on the nature and consequences of the transfer, or transfers, of property to __________ contained in the instrument. I am so disassociated from the interest of the transferee as to be in a position to advise my client independently, impartially, and confidentially as to the consequences of the transfer. On the basis of this counsel, I conclude that the transfer, or transfers, in the instrument that otherwise might be invalid under Section 21350 of the Probate Code are valid because the transfer, or transfers, are not the product of fraud, menace, duress, or undue influence.

3. A court order is obtained for execution of the trust or will after full disclosure of the relationships of the persons involved.

4. A court determines, upon clear and convincing evidence, but not based solely upon the testimony of any person who is in the suspect class of individuals, that the transfer was not the product of fraud, menace, duress, or undue influence. If the court finds that the transfer was a product of fraud, menace, duress, or undue influence, the disqualified person will bear all the costs of the proceeding, including reasonable attorneys' fees.

5. The beneficiary of the gift is a federal, state, or local public entity, and a qualified charity.

6. The transfer does not exceed the sum of $3,000 but only if the total estate solely in the decedent's name was over $100,000 in value.

7. The transfer is made by an instrument executed by a non-resident of California who was not a resident at the time the instrument was executed, and that was not signed within California.

Intestate Succession By a Surviving Domestic Partner

Effective July 1, 2003, surviving domestic partners will have the same intestate inheritance rights in the separate property estate of the deceased partner as does a surviving spouse. Intestate succession rights come into play only when a person dies leaving property not disposed of by a will, trust, or otherwise. What, then, is a "domestic partner"?

According to Family Code Section 297, domestic partners are "two adults who have chosen to share one another's lives in an intimate and committed relationship of mutual caring." All of the following requirements must be met for the formation of a domestic partnership:

1. Both persons have a common residence.

2. Both persons agree to be jointlyresponsible for each other's basic living expenses incurred during the domestic partnership.

3. Neither person is married or a member of another domestic partnership.

4. The two persons are not related by blood in a way that would prevent them from being married to each other in California.

5. Both persons are at least 18 years of age.

6. Either of the following is true: (a) Both persons are members of the same sex; or (b) both persons must meet the eligibility criteria of the Social Security Act for old age insurance benefits and, in the case where the persons are of opposite sex, one or both of the persons must be over the age of 62.

7. Both persons are capable of consenting to the domestic partnership.

8. Neither person has previously filed a Declaration of Domestic Partnership with the Secretary of State.

9. Both persons file a Declaration of Domestic Partnership with the Secretary of State.

If two people are qualified domestic partners and one dies leaving separate property not disposed of by a will, trust, or otherwise, the surviving domestic partner will inherit:

1. The entire intestate estate if the decedent did not leave any surviving issue, parent, brother, sister, or issue of deceased brother or sister.

2. One-half of the intestate estate in the following cases: (a) Where the decedent leaves only one child or the issue of one deceased child; (b) Where the decedent leaves no issue but leaves a parent or parents or their issue or the issue of either of them.

3. One-third of the intestate estate in the following cases: (a) Where the decedent leaves more than one child; (b) Where the decedent leaves one child and the issue of one or more deceased children; (c) Where the decedent leaves issue of two or more deceased children.

Other Important Items to Note

In addition to the foregoing changes in California law, it is important to note that federal tax law continues at the following levels:

1. The estate tax exemption remains at $1 Million per individual in 2003.

2. The annual gift tax exclusion remains at $11,000 in 2003. The making of annual gifts at or below the gift tax exclusion can be an excellent way of reducing larger estates without affecting a client's estate tax exclusion.

If you have any questions concerning these legal items of note for 2003, or any other questions concerning your individual estate planning needs, I will be pleased to answer to such questions for you.