California Lawyers Association
CLA Sections Have A Successful 2025 With Their Sponsored Legislation
CLA’s Sections were hard at work in 2025 pursuing their legislative proposals, with four bills being enacted. The changes made by these bills, effective on January 1, 2026, except where indicated, are discussed below.
Business Law Section
Commercial Transactions Committee
AB 771 amended provisions of California’s Uniform Commercial Code (UCC) that address the manner in which an individual debtor’s name must appear on specified documents, to conform to the uniform version of the UCC.
By way of background, a mortgage or deed of trust is executed by a debtor using the name under which the debtor takes title to the real property subject to the mortgage or deed of trust. In the case of an individual debtor, that name may not be exactly the same as the name on the debtor’s California ID (often, but not necessarily, a California Driver’s License). For example, the California ID may contain the debtor’s entire first name, entire middle name, and entire last name, but the debtor may take title using only their middle initial instead of their entire middle name.
Most security interests can be perfected under the UCC by filing a UCC-1 financing statement with the appropriate public official. A mortgage or deed of trust on its own can also be effective as a “fixture filing” (a financing statement that perfects a lender’s security interest in personal property that is or will become fixtures to the real property). However, under California’s version of the UCC, a mortgage or deed of trust can be effective as a fixture filing only if it contains the name of the debtor exactly as shown on the individual’s California ID. Therefore, if the name on the mortgage or deed of trust does not exactly match the name on the California ID, it is necessary to file a separate financing statement in the real estate records containing the name exactly as shown on the debtor’s California ID. That is not what the drafters of the uniform version of the UCC intended.
To accommodate possible differences between the name by which an individual debtor might execute a mortgage or deed of trust and the name reflected on their driver’s license or state ID, the 2010 amendments to the uniform version of Article 9 of the UCC included language providing that a mortgage or deed of trust can be effective as a fixture filing, even without providing the debtor’s name as it appears on their driver’s license or state ID card, as long as it provides the individual name of the debtor or the surname and first personal name of the debtor. AB 771 amended section 9502 of California’s Commercial Code to add this language, making it consistent with the uniform version of the UCC as enacted in almost every other state.
Family Law Section
When a petition for dissolution, legal separation, or nullity is filed, Automatic Temporary Restraining Orders (ATROS) become effective against both parties upon service of the petition and summons until the final judgment is entered, the petition is dismissed, or the court issues a further order modifying or terminating one or more of the ATROS. One of the ATROS deals with insurance and provides, in part, that both parties are restrained from “canceling” insurance held for the benefit of the parties and their child or children for whom support may be ordered.
Questions and disputes have often arisen about the exact scope of the restrained conduct relating to insurance. Some contend that “canceling” insurance is limited to an affirmative act by one spouse, telling the insurer to cancel the insurance covering the other spouse or children for whom support may be ordered. Others contend that allowing insurance to lapse for nonpayment of premiums or failing to renew are within the scope of the restrained conduct because they are, in effect, equivalent to canceling insurance.
AB 1297 avoids ongoing disputes about the term “canceling” and clarifies the law by also restraining the parties from allowing insurance to lapse for nonpayment of premiums or failing to renew the insurance, both of which are, in effect, equivalent to canceling insurance. These changes will be effective on January 1, 2027, providing time to update the Judicial Council’s mandatory Summons (Family Law), FL-110, which includes the language of the ATROS.
Trusts and Estates Section
AB 565 enacted a comprehensive statutory scheme governing virtual representation, which allows a competent adult to represent and bind trust beneficiaries or other individuals who lack the legal capacity to represent themselves, provided specified conditions are met, in line with what all states except for Louisiana and Oklahoma have enacted.
Numerous sections of the Probate Code reference the need to provide notice to, or obtain consent from “all beneficiaries” of a trust, or similarly broad classes. The Probate Code also requires a trustee to provide notice to “each beneficiary” of a trust, and “each heir” of the deceased settlor in certain circumstances.
Beneficiaries who are Minors, Incapacitated, Unborn, or Unknown (sometimes referred to as MIUUs) cannot legally consent to modification of a trust under Probate Code section 15404, so that procedure cannot be used in common cases with a broad beneficial class unless a petition is brought to approve the modification or to appoint a guardian ad litem (GAL). Both alternatives are costly, time consuming, and necessarily involves the consumption of court resources. In the case where the trustee is required to provide notice to all beneficiaries and heirs (which may include MIUUs), there is currently no clear statutory procedure regarding how such notice would be effectively provided to MIUUs, thus leaving the trustee unable to fulfil that duty without obtaining a court order deeming the notice to have been effectively delivered.
An alternative to the lengthy, costly and time-consuming courtroom process is virtual representation, which allows a competent adult to represent and bind others who lack the legal capacity to represent themselves when (1) the competent adult owes a fiduciary duty to or has a substantially identical interest as those who are being represented, and (2) there is no conflict of interest between the representative and those who are being represented. AB 565 creates this alternative, without limiting the appointment of a GAL or otherwise seeking court guidance as an option to represent the interests of MIUUs if desired by the parties.
Trusts and Estates Section and Taxation Section
SB 376 resolved a conflict between a California income tax statute and a federal income tax statute that California has adopted, consistent with statements of the Franchise Tax Board (FTB) but not explicitly addressed in the current California statute itself.
By way of background, Revenue and Taxation Code section 17082 governs the taxation of income from incomplete gift nongrantor trusts (INGs). INGs are trusts that (1) do not trigger gift tax when property is transferred to them, (2) are separate taxpayers for income tax purposes, and (3) are typically structured to benefit the grantor (the person who creates and funds the trust). Before the enactment of Revenue and Taxation Code section 17082, a California taxpayer could create an ING in a lower-tax or no-tax state, transfer assets to the trust without paying any gift tax on the transfer, and avoid paying California income tax on the income earned by those assets while they remained in the trust, all with the ability to benefit from the assets.
Charitable remainder trusts (CRTs) are trusts that qualify under Internal Revenue Code section 664 for favorable tax treatment. CRTs are administered in two phases. During the initial phase, a CRT makes periodic payments to the grantor or other designated beneficiaries, based either on a fixed annuity amount or a percentage of the trust’s assets as updated annually. Once the initial phase is done, which either occurs after a fixed term of years or at the death of the beneficiaries, all remaining assets pass to charity and the CRT terminates. There are two major tax benefits for CRTs. First, upon funding a CRT, the grantor receives a charitable deduction based on the actuarial value of the remainder interest earmarked for charity. Second, a CRT does not pay income tax. Instead, the distributions to non-charitable beneficiaries carry out income tax in accordance with a complicated tier system. As a result, any income tax generated by the CRT assets is deferred until distributions are made to the non-charitable beneficiaries.
CRTs are not commonly referred to as INGs, but under the current statutory language of Revenue and Taxation Code section 17082, a CRT could fall under the definition of an ING. SB 376 amended Revenue and Taxation Code section 17082 to explicitly provide that the definition of an ING does not include a trust, or portion of a trust, that qualifies as a CRT, consistent with statements the FTB has made.