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AB-926 Cemeteries: endowment funds.(2017-2018)

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Date Published: 03/22/2017 09:00 PM
AB926:v98#DOCUMENT

Amended  IN  Assembly  March 22, 2017

CALIFORNIA LEGISLATURE— 2017–2018 REGULAR SESSION

Assembly Bill No. 926


Introduced by Assembly Member Irwin

February 16, 2017


An act to amend Sections 8725, 8726.1, and 8733 8733, and 8733.5 of, and to add Section 8726.2 to, the Health and Safety Code, relating to cemeteries.


LEGISLATIVE COUNSEL'S DIGEST


AB 926, as amended, Irwin. Cemeteries: endowment funds.
Existing law authorizes a cemetery authority which maintains a cemetery to place its cemetery under endowment care and establish, maintain, and operate an endowment care fund. Existing law requires the principal of all funds for endowment care to be invested, and only the net income to be used for the maintenance, repair, or restoration of the cemetery property.
This bill would authorize a cemetery authority to request the trustee of an endowment care fund authority, its directors, or its board of trustees to elect to make distributions from the endowment care fund for the maintenance, repair, or restoration of the cemetery property according to either of two different methods. The bill would establish conditions under which a distribution from the endowment care fund could be made under each method.
Vote: MAJORITY   Appropriation: NO   Fiscal Committee: YES   Local Program: NO  

The people of the State of California do enact as follows:


SECTION 1.

 Section 8725 of the Health and Safety Code is amended to read:

8725.
 A cemetery authority that maintains a cemetery may place its cemetery under endowment care and establish, maintain, and operate an endowment care fund. Endowment care and special care funds consisting of trust funds created by irrevocable trust agreements may be commingled for investment and the net income therefrom shall be divided between the endowment care and special care funds in the proportion that each fund contributed to the principal sum invested. Special care funds derived from trusts created by a revocable agreement shall not be commingled for investment and shall be accounted for separately from all other funds. The funds may be held in the name of the cemetery authority, its directors, or in the name of the trustees appointed by the cemetery authority.

SEC. 2.

 Section 8726.1 of the Health and Safety Code is amended to read:

8726.1.
 (a) A cemetery authority may request the trustee to elect either of the following distribution methods from the endowment care fund: authority, its directors, or its board of trustees may elect either of the following methods for the distribution of income from the endowment care fund to be available for the purpose of maintenance, repair, replacement, or restoration of endowment cemetery property:
(1) (A) All ordinary income plus capital gains, which for purposes of this article is money or property that a trustee receives as current return from a principal asset, including the collected dividends, interest, net capital gains, and other income of the trust reduced by taxes on income, fees, commissions, and costs. For purposes of this article, the method of distribution under this paragraph is a net income distribution method.
(B) When using a net income distribution method, the trustee of the endowment care fund shall may create a reserve from which principal losses may be replaced by setting aside a reasonable percentage of the income from the fund. The trustee may also set aside reserves for future maintenance, repair, replacement, or restoration of property or embellishments in the cemetery that may be necessary or desirable as a result of wear, deterioration, accident, damage, or destruction. The total amount of these reserves for maintenance, repair, and restoration shall not at any time exceed 10 percent of the endowment care fund. “Net capital gains,” as used in this section, means the amount by which cumulative capital gains since the establishment of the endowment care fund exceed the sum of cumulative capital losses since the establishment of the endowment care fund and capital gains previously set aside in reserve. Additions to the reserve in any year from realized capital gains shall not exceed one-half the difference between the capital gains and the capital losses during the year. Any capital gains not set aside in reserve in any given year shall be become a part of the principal of the endowment care fund.
(2) A unitrust amount, which shall be no less than 3 percent and no more than 5 percent of the fair market value of the endowment care fund, either determined annually or averaged pursuant to paragraph (2) of subdivision (e) of Section 16328 of the Probate Code. determined by averaging the net fair market value of the assets as of the last trading day for the end of each of the three preceding fiscal years. For the purposes of this article, the method of distribution under this paragraph is a unitrust distribution method.

(b)If a cemetery authority does not request the trustee to elect the distribution method pursuant to paragraph (2) of subdivision (a), a distribution shall only be made pursuant to the net income distribution method.

(b) If, in accordance with Section 8733.5, the cemetery authority has selected a bank or trust company as sole trustee, the cemetery authority shall request such trustee to make the election between the two distribution methods in subdivision (a).
(c) If the cemetery authority has selected a bank or trust company as sole trustee in accordance with Section 8733.5 and does not request that trustee to elect the distribution method pursuant to paragraph (2) of subdivision (a), a distribution shall be made pursuant to the net income distribution method.

(c)

(d) For the purposes of this article, “net income” or “income” means the amount of distributable funds calculated for distribution under either the net income distribution method or the unitrust distribution method.

SEC. 3.

 Section 8726.2 is added to the Health and Safety Code, to read:

8726.2.
 (a) A trustee may convert from a net income distribution method to a unitrust distribution method by following the procedures of Article 2 (commencing with Section 16335) of Chapter 3 of Part 4 of Division 9 of the Probate Code. cemetery authority, its directors, or its trustees may elect to convert from a net income distribution method to a unitrust distribution method. The election to convert to a unitrust method shall be documented by the cemetery authority, its directors, or its trustees in writing no later than 60 days prior to the beginning of the year in which the distribution will take place. A notice of that election shall also be provided to the Cemetery and Funeral Bureau. If a cemetery authority has selected a bank or trust company as sole trustee in accordance with Section 8733.5, that trustee may disapprove that request if it believes the request will not be in compliance with the objectives of the endowment care fund.

(b)If a cemetery authority requests that the trustee convert to a unitrust distribution method, that request shall be provided to the trustee in writing no later than 60 days prior to the beginning of the year in which the distribution will take place. The trustee may disapprove that request if it believes the request will not be in compliance with the objectives of the endowment care fund.

(b) A cemetery authority may request the conversion from a unitrust distribution method to the net income distribution method upon obtaining a favorable determination from the Cemetery and Funeral Bureau or a competent court that the conversion would be beneficial to the care, maintenance, and embellishment of the cemetery.
(c) Distributions pursuant to the unitrust distribution method from an endowment care fund may be made on a monthly, quarterly, semi-annual, or annual basis, as agreed upon by the cemetery authority and the trustee of the fund. basis. If prior distributions have been less than the maximum 5 percent permitted, the accumulated difference between the maximum permitted distributions and the actual distributions may be distributed at any time.
(d) (1) In order to withdraw income pursuant to the unitrust distribution method, all of the following conditions shall exist:
(A) The As of the end of the month prior to a distribution, the fair market value of the endowment care fund after the withdrawal shall be greater than the aggregate of 80 percent of the fair market value of the endowment care fund as of the end of the immediately preceding fiscal year plus the total contributions made to the principal of the trust from the end of the immediately preceding fiscal year to the date that the method of calculation is selected. year.
(B) Beginning with the third year of a unitrust distribution method, a three-year analysis of investment returns and distribution practices shows sufficient protections of the endowment care fund principal. principal to ensure the market value of the endowment care fund as of the end of the month prior to a distribution is no less than the cumulative total of all principal contributions to the fund since inception.
(2) If the condition in subparagraph (A) or (B) of paragraph (1) does not exist, distributions for that fiscal year shall be made in accordance with a net income distribution pursuant to paragraph (1) of subdivision (a) of Section 8726.1.
(e) This section does not limit the authority of the trustee cemetery authority, its directors, or its trustees to pay the normal operating expenses and taxes of the fund.
(f) Failure by a cemetery authority to file a report required pursuant to Section 7612.6 of the Business and Professions Code prohibits the conversion to, or a continuation of, a unitrust distribution method.
(g) The Funeral and Cemetery Bureau may adopt rules to administer this section and ensure compliance, including, but not limited to, reporting requirements.

SEC. 4.

 Section 8733 of the Health and Safety Code is amended to read:

8733.
 A sum in excess of If the net income distribution method has been selected, no more than 5 percent of the net income derived from an endowment care fund, or special care fund, or both, in any year shall not be paid as compensation to the board of trustees for its services as trustee. If the unitrust distribution method has been selected, no more than 0.1 percent of the fair market value at the end of the immediately preceding fiscal year may be paid as compensation to its board of trustees for its services as trustee. This amount shall be the total compensation from the fund to be paid to a trustee for services. services, except as provided for in Section 8733.5. For purposes of this section, “net income” means the amount of ordinary income remaining after reasonable administrative expenses, including bookkeeping, postage, taxes, and other costs directly related to generating income to the trust fund, have been deducted from the gross income derived from the fund.

SEC. 5.

 Section 8733.5 of the Health and Safety Code is amended to read:

8733.5.
 In lieu of the appointment of a board of trustees of its endowment care fund, any cemetery authority may appoint as sole trustee of its endowment care fund any bank or trust company qualified under the provisions of the Banking Law (Division 1 (commencing with Section 99) of the Financial Code) to engage in the trust business. If a cemetery authority appoints a bank or trust company, the sum a reasonable sum may be paid to the bank or trust company may exceed 5 percent of from the net income derived from the endowment care fund, or special care fund, or both, notwithstanding Section 8733.