Code Section Group

Probate Code - PROB

DIVISION 9. TRUST LAW [15000 - 19403]

  ( Division 9 enacted by Stats. 1990, Ch. 79. )

PART 8. PAYMENT OF CLAIMS, DEBTS, AND EXPENSES FROM REVOCABLE TRUST OF DECEASED SETTLOR [19000 - 19403]

  ( Part 8 added by Stats. 1991, Ch. 992, Sec. 3. )

CHAPTER 10. Allocation of Debts Between Trust and Surviving Spouse [19320 - 19326]
  ( Chapter 10 added by Stats. 1991, Ch. 992, Sec. 3. )

19320.
  

If it appears that a debt of the deceased settlor has been paid or is payable in whole or in part from property in the deceased settlor’s trust, then the trustee, the surviving spouse, the personal representative, if any, of a deceased settlor’s probate estate, or a beneficiary may petition for an order to allocate the debt.

(Amended by Stats. 2015, Ch. 48, Sec. 8. (SB 785) Effective January 1, 2016.)

19321.
  

A petition under Section 19320 shall include a statement of all of the following:

(a) All debts of the deceased settlor and surviving spouse known to the petitioner that are alleged to be subject to allocation and whether paid in whole or in part or unpaid.

(b) The reason why the debts should be allocated.

(c) The proposed allocation and the basis for allocation alleged by the petitioner.

(Added by Stats. 1991, Ch. 992, Sec. 3.)

19322.
  

If it appears from the petition under Section 19320 that allocation would be affected by the value of the separate property of the surviving spouse and any community property and quasi-community property not administered in the trust, and if an inventory and appraisal of the property has not been provided by the surviving spouse, the court shall make an order to show cause why the information should not be provided.

(Added by Stats. 1991, Ch. 992, Sec. 3.)

19323.
  

(a) At least 30 days before the time set for the hearing on the petition, the petitioner shall cause notice of the time and place of the hearing and a copy of the petition to be served on the surviving spouse in the manner provided in Chapter 4 (commencing with Section 413.10) of Title 5 of Part 2 of the Code of Civil Procedure.

(b) At least 30 days before the time set for the hearing on the petition, the petitioner shall cause notice of the time and place of hearing, together with a copy of the petition, to be delivered pursuant to Section 1215 to each of the following persons who are not petitioners:

(1) All trustees of the trust and of any trusts to which an allocation of liability may be approved by the court pursuant to the petition.

(2) All beneficiaries affected.

(3) The personal representative of the deceased settlor’s probate estate, if any is known to the trustee.

(4) The Attorney General, if the petition relates to a charitable trust subject to the jurisdiction of the Attorney General, unless the Attorney General waives notice.

(Amended by Stats. 2017, Ch. 319, Sec. 105. (AB 976) Effective January 1, 2018.)

19324.
  

(a) The trustee, the personal representative, if any, of a deceased settlor’s probate estate, and the surviving spouse may provide for allocation of debts by agreement so long as the agreement substantially protects the rights of other interested persons. The trustee, the personal representative, or the spouse may request and obtain court approval of the allocation provided in the agreement.

(b) In the absence of an agreement, each debt subject to allocation shall first be characterized by the court as separate or community, in accordance with the laws of the state applicable to marital dissolution proceedings. Following that characterization, the debt or debts shall be allocated as follows:

(1) Separate debts of either spouse shall be allocated to that spouse’s separate property assets, and community debts shall be allocated to the spouses’ community property assets.

(2) If a separate property asset of either spouse is subject to a secured debt that is characterized as that spouse’s separate debt, and the net equity in that asset available to satisfy that secured debt is less than that secured debt, the unsatisfied portion of that secured debt shall be treated as an unsecured separate debt of that spouse and allocated to the net value of that spouse’s other separate property assets.

(3) If the net value of either spouse’s separate property assets is less than that spouse’s unsecured separate debt or debts, the unsatisfied portion of the debt or debts shall be allocated to the net value of that spouse’s one-half share of the community property assets. If the net value of that spouse’s one-half share of the community property assets is less than that spouse’s unsatisfied unsecured separate debt or debts, the remaining unsatisfied portion of the debt or debts shall be allocated to the net value of the other spouse’s one-half share of the community property assets.

(4) If a community property asset is subject to a secured debt that is characterized as a community debt, and the net equity in that asset available to satisfy that secured debt is less than that secured debt, the unsatisfied portion of that secured debt shall be treated as an unsecured community debt and allocated to the net value of the other community property assets.

(5) If the net value of the community property assets is less than the unsecured community debt or debts, the unsatisfied portion of the debt or debts shall be allocated equally between the separate property assets of the deceased settlor and the surviving spouse. If the net value of either spouse’s separate property assets is less than that spouse’s share of the unsatisfied portion of the unsecured community debt or debts, the remaining unsatisfied portion of the debt or debts shall be allocated to the net value of the other spouse’s separate property assets.

(c) For purposes of this section:

(1) The net value of either spouse’s separate property asset shall refer to its fair market value as of the date of the deceased settlor’s death, minus the date-of-death balance of any liens and encumbrances on that asset that have been characterized as that spouse’s separate debts.

(2) The net value of a community property asset shall refer to its fair market value as of the date of the deceased settlor’s death, minus the date-of-death balance of any liens and encumbrances on that asset that have been characterized as community debts.

(3) In the case of a nonrecourse debt, the amount of that debt shall be limited to the net equity in the collateral, based on the fair market value of the collateral as of the date of the decedent’s death, that is available to satisfy that debt. For the purposes of this paragraph, “nonrecourse debt” means a debt for which the debtor’s obligation to repay is limited to the collateral securing the debt, and for which a deficiency judgment against the debtor is not permitted by law.

(d) Notwithstanding the foregoing provisions of this section, the court may order a different allocation of debts between the deceased settlor’s probate estate, trust, and the surviving spouse if the court finds a different allocation to be equitable under the circumstances.

(e) Nothing contained in this section is intended to impair or affect the rights of third parties. If a trustee, a personal representative, if any, of a deceased settlor’s probate estate, or the surviving spouse incurs any damages or expense, including attorney’s fees, on account of the nonpayment of a debt that was allocated to the other party pursuant to subdivision (b), or as the result of a debt being misallocated due to fraud or intentional misrepresentation by the other party, the party incurring damages shall be entitled to recover from the other party for damages or expense deemed reasonable by the court that made the allocation.

(Amended by Stats. 2001, Ch. 72, Sec. 2. Effective January 1, 2002.)

19325.
  

On making a determination as provided in this chapter, the court shall make an order that:

(a) Directs the trustee to make payment of the amounts allocated to the trust by payment to the surviving spouse or creditors.

(b) Directs the trustee to charge amounts allocated to the surviving spouse against any property or interests of the surviving spouse that are in the possession or control of the trustee. To the extent that property or interests of the surviving spouse in the possession or control of the trustee are insufficient to satisfy the allocation, the court order shall summarily direct the surviving spouse to pay the allocation to the trustee.

(Added by Stats. 1991, Ch. 992, Sec. 3.)

19326.
  

Notwithstanding any other statute, funeral expenses and expenses of last illness, in the absence of specific provisions in a will or trust to the contrary, shall be charged against the deceased settlor’s probate estate and thereafter, against the deceased settlor’s share of the trust and shall not be allocated to or charged against, the community share of the surviving spouse, whether or not the surviving spouse is financially able to pay the expenses and whether or not the surviving spouse or any other person is also liable for the expenses.

(Added by Stats. 1991, Ch. 992, Sec. 3.)

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