Legislature(2003 - 2004)
04/14/2003 01:01 PM Senate JUD
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SB 163-POWERS OF APPOINTMENTS/TRUSTS/CREDITORS
CHAIR SEEKINS announced SB 163 to be up for consideration.
SENATOR THERRIAULT motioned to adopt CSSB 163(JUD), version \I.
There was no objection and it was so ordered.
MR. BRAIN HOVE, staff to Senator Seekins, said this dovetails
with SB 87.
In 1997, legislation was passed making Alaska one of
the best trust jurisdictions nationwide. This
legislation made two significant changes to existing
law. First, it provided that an individual could set
up a trust and have the trust as long as the family
wanted. This is known as a perpetual trust. Secondly,
it provides that an individual could set up a trust
where he or she could be a beneficiary and have the
trust's assets protected from future creditors. This
is known as a self-settled spendthrift trust. Over the
last six years, the states of Delaware, Rhode Island
and Nevada have not only adopted similar legislation,
but also incorporated improvements to certain
provisions. Idaho and South Dakota have also added
features to their general trust laws that now make
them comparatively advantageous. SB 163 places Alaska
trust legislation back on an equal footing with these
states. Additionally, SB 163 codifies a number of
matters that have been accepted by Alaska trust
practitioners, as being the common law of the state
for which there has been no statutory counterpart.
Overall, these changes are designed to keep Alaska as
the premier trust jurisdiction, thereby, not only
retaining financial resources in state, but also
continuing to attract non-resident trust assets to
Alaska.
MR. JON BLATTMACHR said he is the one that originally suggested
the legislation to allow the United States and Alaska in
particular to capture business that was going to off-shore
jurisdictions and to create trusts that last as long as the
family wants. He emphasized how extraordinarily successful this
legislation has been for the State of Alaska. SB 163 would help
Alaska catch up and in certain cases, surpass similar
legislation enacted in some other states.
MR. DOUG BLATTMACHR, Alaska Trust Company, supported the
statements his brother made adding that this helps fine-tune
what they have already done and brings Alaska to the forefront
of being a premier jurisdiction. The legislation that has passed
has brought significant business to Alaska. They typically have
$20 million to $30 million on deposit with local banking
institutions. In 2001, over $700,000 additional life insurance
premium tax dollars came to the state and they estimate about
$500,000 came in this year from his institution alone.
MR. STEVE GREER said this bill has been two years in the making
and articulates what they believe the common law to be. It
clarifies some of the ambiguity that the original legislation
has and incorporates some Delaware provisions.
MR. SHAFTEL said he also supports SB 163 and that this vehicle
has been accepted and used widely by Alaska residents.
MR. PETER BRAUTIGAM said this legislation that they have all
worked on since 1997 has been beneficial to all of their clients
in Alaska that do estate planning.
MR. RICH HOMPESCH said he also supports SB 163 for all the
reasons mentioned.
MR. JOHN MAINE, Director, Division of Child Support Enforcement,
said he was concerned about how they could enforce child support
with regard to trusts. They hope this language does not hinder
their ability to collect child support.
SENATOR ELLIS asked if he didn't understand the bill well enough
to know if it would hinder child support enforcement as it
relates to trusts.
MR. MAINE explained that revocable trusts are something they
have had to learn to live with and they have dealt with them in
three or four cases. He said they removed the word "primary" on
page 3, line 12, and the division could probably work with
language about showing intent to defraud child support.
SENATOR THERRIAULT said that language attracted a lot of
attention when the bill passed originally.
MR. GREER explained that page 3, line 12 [indisc].
TAPE 03-22, SIDE A
SENATOR ELLIS asked if the trust protection is new.
MR. GREER said the language didn't add anything. They just
wanted to clarify that if there is intent to defraud a creditor,
that transfer can be set aside.
SENATOR ELLIS asked for a comparison in layman's terms of what a
trust protector, a trustee advisor, and a trustee would be. He
asked whether trust protectors are something new that they are
adding to the statute.
MR. DOUG BLATTMACHR replied yes, they are adding that to the
statute, but it's something that is being used quite
extensively. About 99 percent of their trusts use the trust
protector concept. It's only there if the person setting up the
trust wants to put in a trust protector and that is usually a
trusted friend or advisor. They can remove the trustee if they
don't think he is performing the job properly or for any number
of other reasons without going to court.
SENATOR FRENCH asked if these are called asset protection
trusts.
MR. BLATTMACHR replied that the first piece of legislation was
done for two primary reasons.
To allow trusts to last more than the rule against
perpeties, which is about 80 years, because some
people want to continue a trust for a longer period of
time for tax and non-tax reasons.
The main reason we wanted to provide for these, what's
called self settled spendthrift trusts, is where you
can be a beneficiary and not have the asset attached
by future creditors. We wanted to encourage people to
make lifetime transfers...Right now, under the federal
tax code, everybody has a million dollars that if
their estate, if they die with less than a million
dollars, doesn't pay any tax. Well, you can use that
during your lifetime. So, many times people will have
come to planners and say, 'You know, when we die, our
children have to pay a fairly significant estate tax.
What can we do?'
They may have $4 million and indicate that they live well below
their means and they don't need all this money and they can
transfer that to their children today and get all the
appreciation out of the estate. So, if they transfer a million
dollars, in 20 years at historical rates you're going to have
probably close to $8 million additional in your estate to be
taxed. If you kept it, your heir would pay about $4 million in
tax.
MR. BLATTMACHR said he wanted to encourage people to transfer
money to their heirs, but they might transfer too much and
actually need to have some money back. A beneficiary feels more
comfortable making the transfer knowing that if he needs it, he
can go back to the trustee. A lot of people who set up these
trusts for legitimate reasons are coming back to the U.S.
jurisdiction because they don't have to go off-shore to
legitimately accomplish what they want to accomplish.
SENATOR FRENCH asked if Alaska had ever adopted the FTA, Uniform
Fraudulent Transfer Act.
MR. GREER replied they have not adopted the act.
SENATOR THERRIAULT said the trust protector is new to statute,
but not new to the state.
MR. DOUG BLATTMACHR said they have encouraged the use of a trust
protector. "We think that if we can't keep the beneficiaries
happy, we probably don't want the relationship anyway."
SENATOR FRENCH asked if this bill adds any protection for
creditors.
MR. BLATTMACHR replied that it just clarifies some things - like
what is an existing creditor and what isn't.
MR. GREER replied yes there was an addition on page 5 that could
be very helpful [indisc]
SENATOR ELLIS asked how these services are marketed, especially
to folks outside of Alaska.
MR. DOUG BLATTMACHR replied that in the beginning it was a very
hot topic in the estate planning community and they got a lot of
press. Then there were about 15 seminars across the country
sponsored by New York Life, a company that markets their
services at the largest estate planning conference that is held
each year. As time goes on, more and more professionals started
talking about it.
SENATOR THERRIAULT motioned to pass CSSB 163(JUD), version \I,
from committee with individual recommendations. There was no
objection and it was so ordered.
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