Legislature(1995 - 1996)
10/16/1995 09:00 AM House JUD
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 308 - UNIFORM PROBATE CODE REVISIONS CHAIRMAN PORTER: We have for consideration this afternoon, a very straightforward little piece of legislation (laughter) -- 94 pages of HB 308, "An Act relating to the Uniform Probate Code," which I hope has no connection to the one that we heard this morning, the Unicameral legislation. We have present, the sponsor of this piece of legislation, Representative Parnell. Welcome Sean, would you like to introduce your bill. Number 011 REPRESENTATIVE SEAN PARNELL, Sponsor of HB 308: Mr. Chairman, I won't even take up a lot of the committee's time to do that. I just want to say that please don't be daunted by the 90 pages because a lot of it is just re-enactment of current law. Everything I was going to say is actually going to be covered by Bob Manly. I appreciate having a much friendlier audience than I had at lunch time. CHAIRMAN PORTER: First then to testify before the committee, to tell us about the bill, is Bob Manly. Welcome Bob. Number 018 BOB MANLY, ESQ.: Thank you. Right now in Alaska, we've got the Uniform Probate Code governing probate procedure, intestacy - what happens if you don't have a will and another -- and most of those kind of related matters. We've got the 19 -- one of the 1960 -- either the 1967 or the 1969 version of the Uniform Probate Code right near -- right now. It was enacted in about 1972 and it served us real well. Basically, the Uniform Probate Code and well, while our bill is thick, this is the whole thing with the commentary. It developed simply because the old probate system was too cumbersome, too expensive and it just didn't work. I mean that's why Norm Dacey(ph) made a whole lot of money selling "How to Avoid Probate at any Costs," and all these form books. And basically, the Uniform Probate Code simplifies it and reduces the possibility of litigation in the probate process. The modifications you have in front of you right now are the 1990 update to the Uniform Probate Code and basically it's based on the experience with the old Uniform Probate Code and just largely some tune-ups, some minor changes to reflect changing social views, changing families and also to expand the Uniform Probate Code procedural directives to cover a number of nonprobate assets, such as joint bank accounts, a little more coverage on life insurance and revocable trusts. Basically, a lot of the bill is sort of back stopping. In other words, if nobody wrote it down in the will or the trust, this contingency that happens, well how do you cover it? Rather than go to the court and get a different answer each time and slowly develop case law, it's going to be set out here for people to take a look at. There's some changes in the intestacy law, how property passes if you don't have a will. It broadens what's known as the "augmented estate", the prohibitions against disinheriting your surviving spouse. And it applies some default rules, like I said, to trusts and insurance policies. Number 044 MR. MANLY: Now the state Bar Association probate section reviewed the 1990 updates for about a year. I mean, quite literally, we have a monthly meeting and every month, someone was assigned a part, we reviewed it, discussed it and suggested some modifications to the Uniform Act to conform to the Alaska experience and current Alaska bond (indisc.) the legislature has done in the past. Now, as a matter of Bar policy, the section can't speak as a group. So, my testimony and any other testimony you get from members are strictly as individuals, but we did discuss it as a group and the consensus of the group was the bill that you have in front of you. We've got more than a dozen layers sitting down there and anytime we can get anything close to - to agreement, we're doing real well. So, there's a always a few people that say, "Well no, it should be this way, that way." But by and large, the group felt that what's before you is the - the best way to proceed. Number 057 MR. MANLY: I want to mention you know the question of uniformity. Anytime you have a uniform law in front you - proposed - there's always a certain amount of pressure to "well, let's keep it uniform. Let's do what everyone else has done," which makes a lot of sense particularly in the commercial contest like the Uniform Commercial Code or banks are going across state lines. It makes a lot less sense in the probate area. I mean, people either die in Alaska or they don't die in Alaska. It's not like you've got an interstate commerce. You know, occasionally there's - there's overlap where it's of concern, but really the bill, I think, needs to be and in fact does in its present form tailor itself to the Alaska concerns. Number 065 MR. MANLY: Now I want to just highlight for you some of the modifications from the uniform bill, so you'll know exactly what's going on. One of them - the uniform bill proposes an age of majority at age 18. In other words, money can be passed to children totally an out-route right at age 18. Current law in Alaska is age 19. It has been for quite awhile and the Supreme Court recently passed a rule confirming that. Again, it's a policy decision, but when is a child responsible enough to receive a major deposit of money? I mean I know at age 18 if I would have gotten a lump of money I would have bought a purple medal-flecked camaro instead of a college education. And maybe 19 isn't that much better but at least current law is 19 and that's what the bill does provide right now. The other big change from the Uniform Act is with regard to the augmented estate or the elective share. And basically this is the provision which prevents you from disinheriting your spouse. Basically, as a matter of social policy in the prior -- in the present Uniform Probate Code, you're limited to the extent you can exclude a surviving spouse in your will or otherwise. And basically, a surviving spouse must get at least one-third of the augmented estate and the... CHAIRMAN PORTER: That's the current code? MR. MANLY: That's current code, that's current law and - and it remains the same in this bill. One-third of the augmented estate - and the augmented estate includes the probate estate, life insurance passing to the surviving spouse, gifts to the surviving spouse, gifts in certain circumstances to third parties, revocable trusts, joint bank accounts with third parties; basically there's an attempt to include everything a person owns in ownership interest when they passed away and require that the surviving spouse get at least one-third of that. You can certainly give your surviving spouse more, as most people do, but that limits your ability to disinherit. What this bill does -- ya, I'm sorry. REPRESENTATIVE GREEN: Can I just ask one question. Now you say that it's currently that way and this bill maintains it that way? MR. MANLY: That's correct. REPRESENTATIVE GREEN: Does it change in... CHAIRMAN PORTER: The Uniform Code is - is something different.... MR. MANLY: The proposed Uniform Code is something different and the - the bill in front of you does change the augmented estate in some procedural aspects in terms of how you value certain trust assets and what's included. Right now the big hole in the augmented estate is life insurance where a third party is the beneficiary. So in other words, if I wanted to disinherit my wife, what I'd do is run out and buy a big cash value life insurance policy and name someone else - you know, my brother - as the beneficiary and use up all my money to buy that life insurance policy. Then I'd know when I passed away, it would go - most of my assets would go to my brother instead of my spouse. So, it - it kind of plugs a hole - the current bill and the Uniform Act plugs a hole here and that's in front of you, where the current bill in front of you retains the one-third share. And what the Uniform Act does, is it puts up a vesting schedule. So in other words, if someone is married for a very short period of time, the surviving spouse is entitled to very little. If they're married for 10 years or actually 11 years, then it goes up to the one-third share. And finally, if you're married for 15 years or more, it goes up to the 50 percent share. So it's sort of like a buy-in and that's one reason I personally don't like it. My view is you're either married or you're not married and this new -- or the Uniform Act would treat a less wealthy spouse sort of like an employee, a loyal employee buying into the process. And at least the drafters described this as sort of the partnership theory of marriage and I really think of it more as the employee theory of marriage. In any case, there's some controversy on this. There was certainly significant controversy within the group of lawyers that reviewed it and we thought the best thing to do is leave it the same - leave it that one-third versus the buy-in the same as opposed to try to introduce a controversial aspect of it because I really don't think out of all this long bill, there's any other significantly controversial items. CHAIRMAN PORTER: Just to be clear for the record that this would only apply in those cases where there was not a will or prenuptial or something like that in any event. MR. MANLY: It would only apply for those not a prenuptial. If you had a will, you could certainly give the spouse more but you couldn't give her less. And I'm gonna say her just out of reflex because women live longer. I mean that's almost -- by and large, that's almost the - the universal experience. CHAIRMAN PORTER: Discriminatory as that is. Representative Green. Number 131 REPRESENTATIVE GREEN: Thank you, Mr. Chairman. For my edification then, if this is a community property state and there is a divorce, the spouse gets half but if that spouse -- one person dies, they could actually contract for less than half? MR. MANLY: This -- just starting out with sort of a technical point - actually this is a non-community property state. REPRESENTATIVE GREEN: Oh, I thought it was. MR. MANLY: Ya, no - no, we are not a community property state; it's a separate property state. But in terms of divorce, basically the rule is the allocation of assets is whatever the judge you're in front of thinks is fair and often times that ends up as 50/50. But you can before marriage, or even after marriage, contract around that with a prenuptial or postnuptial agreement and say, "No, you know, we're going to agree ahead of time to some other allocation," and you can certainly contract around this statute that says you must give the spouse at least one-third of the augmented estate. So you can change it but you've got to think about it ahead of time and you've got to agree. Jumping back to another difference between the bill in front of you and the Uniform Probate Code, 1990 version, is the formalities of wills. Under the bill in front of you, the formalities for a will are the same as they are now. A will must be either entirely in your own handwriting or the substand of portions in your own handwriting, signed by you and dated by you - that would be a holographic will. Or in the alternative that if it's typewritten or written by somebody else, it must be witnessed by two persons. Now those witnesses can be beneficiaries, but it must be two people who saw you sign or saw you acknowledge your signature. The 1990 UPC provision would reduce the formalities. The 1990 version would say that if it can be established in court that you intended it to be a will or that you intended to pass your property in this fashion, then that proof will substitute as a will. The advantage of such a proposal is that in some cases you're going to get people's wishes carried out who didn't get around to making out a will or making out a whole formal will or who made some procedural mistake. The disadvantage is you're going to have a lot more litigation. You're going to have will contests. Right now, it's pretty clear, either it's a will or it's not a will. It doesn't do any good to say, "He always told me he was gonna leave me the farm." Under the 1990 version, which is not in front of you, the -- it would be possible to do that. All you'd have to do is go in and have a court case and prove by clear and convincing evidence that that's what the intent was. I've talked with the probate masters in Anchorage and Fairbanks and both of them are concerned that it would really lead to an upsurge of litigation and that's why a majority of the committee didn't like that 1990 proposal and so that's why we're suggesting we stay with the current Alaska law on that point. Another minor technical deviation relates to Probate Rule 5. Under the 1990 version, if you deposit a will with the court for safekeeping and then die, the will is released to whoever you named as your personal representative, which is just the fancy new unisex name for administrator/administratrix - that kind of stuff. The experience at least in Fairbanks was that when they released - the court system - somebody died, the court system released these wills, people kept losing them. The will never made it back to the probate court. So the Probate Rules Committee decided that now wills are no longer released to the personal representative; rather, they're transferred directly to the probate court so you don't have that problem. And the 1990 version of the Uniform Probate Code didn't cover that and so our proposed modification - the bill in front of you right now - would conform to our current probate rules which don't - doesn't release that will. The last.... CHAIRMAN PORTER: Could I -- Before you leave that one, could I ask a question? MR. MANLY: Sure. CHAIRMAN PORTER: Recognizing the goal of this is to eliminate procedural steps and less time, less money, and those kinds of things, why isn't that increasing it to send it through a probate court rather than directly to the executor. MR. MANLY: Well, if you - once the executor-direct gets it, the executor in order to make it effective must go to the probate court and be formally appointed as the personal representative. CHAIRMAN PORTER: Oh, that's the way the law is? MR. MANLY: Ya, ya. The will itself does not good; rather what you must do is present to the court, along with the will, basically an affidavit saying I'm the person named here; I don't know of any other named will; I don't know of anyone who should be personal representative instead of me; please appoint me. Then the court appoints you without a hearing, without anything else, and you could go forth and administer the estate and need have no more contact with the court until everything is done; at which point you can either file an affidavit with the court saying, "I'm done. If anybody wants to sue me they have to sue me within six months," or you can actually present to the court a detailed inventory. But it's a real minimal intrusion, but just the will itself doesn't do anybody any good. CHAIRMAN PORTER: An executor receiving the will now has to have an (indisc.) interaction with the probate court in any event. MR. MANLY: Right, in any event. The last sort of deviation from the 1990 version and the bill in front of you is on ademption. And what ademption means is if I give someone my diamond ring and my diamond ring before I die gets stolen by a burglar, what happens? Current Alaska law which is retained in this bill in front of you is that the person who was to get the diamond ring gets nothing because it is adeemed by extinction - it no longer exists. Similarly, if I give you my pink cadillac and I sell my pink cadillac before I die and buy a Masarati, the person who got the pink cadillac in the will gets nothing because the pink cadillac is gone. Again, the 1990 version of the Uniform Probate Code would have changed that and I think it's in an attempt to make what they hope or think people's intent might have been, carried out. They would say that if I gave you the diamond ring in my will and it was stolen by a burglar, well instead of the ring you get $50,000 in cash because that's what it was worth at the time it was stolen. Similarly, if I gave you my pink cadillac and bought a replacement car, it was a replacement car and so you get that. And at least the majority of the committee - in fact I think this was one of the few areas where we were unanimous - thought that in most cases if my client wants to give a diamond ring to a daughter and a gold watch to a son and the diamond ring isn't gone anymore, it's the object they're giving; not the value. It's a policy decision to a certain extent but at least the committee thought we were better off under current law which would extinguish those kind of gifts. MR. MANLY: There are some other, I guess, changes from current law that I think are of significance - probably half a dozen here. Would you like me to sort of highlight those at this point? CHAIRMAN PORTER: Representative Bunde. REPRESENTATIVE BUNDE: Before we go on - if I could just to clarify. The bill's position on age of majority is... MR. MANLY: Nineteen. REPRESENTATIVE BUNDE: Nineteen as opposed to the eighteen in the... MR. MANLY: Correct. REPRESENTATIVE BUNDE: Thank you. CHAIRMAN PORTER: I think there's only one other person to testify. And I think it would be helpful to me I will readily admit, having some familiarity with Uniform Code provisions, that I haven't read this and looked forward to being briefed before I dove in. I haven't and I would appreciate the information. MR. MANLY: Okay, great. One of the, I think, significant changes you ought to pay attention to that I think is a policy change is the change in the intestacy law - what happens if you don't have a will? And I've always viewed intestacy as a combined sort of a decision by the legislature, trying to figure out what a person would have wanted to do if they would have gone to the trouble of getting a will and, to a certain extent, what they should have done. So, it's a combined policy decision there. And what the May 1990 Act has done, which is incorporated into the bill in front of you, is try to take into a little closer consideration sort of the changed nature of a family where we have many more second marriages and the like and many more childless couples. And right now, if a spouse passes away with no children of that relationship and no children of a prior relationship by that deceased spouse and also leaves a parent, the surviving spouse gets half and the parent gets half. The change -- or the bill in front of you would change that a little bit and if the -- and what would happen instead is the surviving spouse would get the first $200,000 of an estate and three-quarters of the rest and the parents would only get that one- quarter above $200,000. So it significantly reduces the share of parents in a married situation where there are no children and the parents survived. Again, a policy decision. Right now, under current law, if a spouse passes - or a spouse passes away, leaves a surviving spouse with children - only the children of that relationship, no children of a prior marriage or the like - the surviving spouse gets the first $50,000 plus half of the rest and the kids split down the rest. Under the bill in front of you, the surviving spouse with children of that marriage relationship but no other children, would get 100 percent. In other words, the change is the surviving spouse is relied on to take care of his or her own children and there's no immediate split off to those children, whether they're adult or minors or whatever. CHAIRMAN PORTER: Representative Bunde. REPRESENTATIVE BUNDE: That brings a question to mind as you talked about these his, mine and our kids situation. The surviving spouse, but there are children of a previous marriage of the deceased spouse, are they addressed in this because it sounds to me that 100 percent goes to issue of that marriage, not of previous marriages. CHAIRMAN PORTER: That's the next one, right? MR. MANLY: Okay, ya that is the next one and it gets a little complicated. Right now, under current law, if husband passes aways, wife survives, husband has children of a prior marriage and this marriage, then the spouse gets half and all the kids split the remaining half. You don't have that first $50,000 going to the surviving spouse. An even more complicated change in the bill in front of you, which conforms to the 1990 revisions, if there's children by this marriage and the surviving spouse has kids by a prior marriage - not the deceased spouse, but the surviving spouse has kids by that prior marriage then the surviving spouse gets $150,000 plus half of the rest and then that remaining half after the $150,000 is split among all the kids. However... CHAIRMAN PORTER: All the kids? Even including her kids? MR. MANLY: Yes, including her kids. CHAIRMAN PORTER: Including her kids? MR. MANLY: Ya, all kids are treated - divided up equal and if the deceased spouse had children by a prior relationship and the surviving spouse and the deceased spouse had children by the same relationship, so you have a mixed family the other way with the deceased spouses children also surviving, then the surviving spouse gets $100,000 plus half the rest and half the rest, beyond the $100,000 is split out. Again, it just take -- it's a little more complex but it takes into account a little bit of those kind of changes and at least the probate group with some experience in the area, seemed - they seemed to think that it was a reasonable compromise in - in terms of what people probably would want or should want. Other than that, the intestacy laws are unchanged. If you don't have kids, it goes down to grand kids; if you've got no lineal descendants, it goes back on up to parents then out to brothers, sisters, down to nieces and nephews, back up to grandparents, out to second cousins many, many times removed. But if you don't have anybody within the class of descendants of your grandparents, then it goes to the state of Alaska. It escheats. Now I've already talked about the elective share which is a significant modification. Another modification that's of some significance is the expansion of the 120 hour survival rule. Right now if I leave my wife everything in my will - in order to take, unless I say otherwise in my will - I can say that she has to survive for six months; I can say she has to survive for 30 seconds. But if I don't say anything, she must survive for 120 hours - five days - just to try to cover this situation where we're both in a car accident, she lingers a little longer than I do. But right now under current law, that applies only to probate assets governed by your will. It doesn't apply to joint bank account. It doesn't apply to your jointly held stock. It doesn't apply to your jointly held house - tenants by the entirety. And that's where most peoples' wealth are. (Indisc.) doesn't apply to life insurance designation, beneficiary designations. CHAIRMAN PORTER: Representative Finkelstein: REPRESENTATIVE FINKELSTEIN: Mr. Chair. I'm a little confused. Your house isn't a probate asset - is not a probate asset? MR. MANLY: Well, most married people - I'd say 99 percent of people own their house as tenants by the entireties. So in other words, if husband passes away - bang - everything goes to the wife automatically, outside of probate. No muss, no fuss. People own things that way because it's simple, easy and convenient and that's what they want. REPRESENTATIVE FINKELSTEIN: And in - in regard to bank accounts, it's the same if they're joint accounts? MR. MANLY: Correct, if they're joint accounts. But there's no survival requirement. And most of the lawyers in this room have had one or two cases where husband and wife - no kids - are driving along or flying along and there's a simultaneous death. But it really isn't a simultaneous death; it's a near simultaneous death. The pathologist comes in says, "Well, she died first because she didn't bleed all over the windshield and obviously her neck broke, but he lived for at least one heartbeat longer cause there's blood all over the windshield." The reason that's important - that depends - depending on who died first, that's who -- that's who's heirs get the house. So husband, wife, no kids - wife dies first - house goes to the husband - house goes to husband's family; his parents or whatever. So, you ended up with a fair amount of litigation with pathologists trying to tell you who died first. And this is going to eliminate it and, I think, carry out people's intent. You know, you usually intend that well if somebody -- you want them to live more than 120 hours. And all of these things you can modify by the terms of the agreement or contract. For example, your life insurance policy - you can say you know, "I don't care about the 120 hour survival rule," or you can say, "I want my wife to survive me by six months before she gets anything under this life insurance policy." But the default rule now instead of instantaneous, gives you that 120 hours. And I think that's going to reduce litigation. Another good thing that you're doing with this is expanding the disclaimer provisions. If someone passes away and you're set to inherit something, sometimes you really don't want it. Sometimes for tax reasons it's a lot better to send it on down to your kids if your parents pass away and avoid a state taxation at your generation level and things like that. And right now the Alaska statutory law allows disclaimer of probate property but doesn't address nonprobate property. For example, the house. Husband and wife tenants by the entireties. The statute expands disclaimers to cover nonprobate property so you can disclaim or surviving spouse can clearly and legally disclaim his or her interest in that house if that's the right thing to do tax wise or for other personal reasons. CHAIRMAN PORTER: Representative Green. REPRESENTATIVE GREEN: Now would that mean that that would be a separate action - overt action - that the spouse would have to take? MR. MANLY: Yes. REPRESENTATIVE GREEN: Or is it automatic? MR. MANLY: No. He or she would have to take an overt action. They would have to write a statement that they were disclaiming this interest in the house. They would have to record it with the recorders office. They would have to do so within nine months after the spouse passes away. So there's a time limit. REPRESENTATIVE GREEN: Okay. MR. MANLY: And we've always had that nine month time limit; it's just now expanded to cover nonprobate property. Last thing I want to mention is automatic revocation by divorce. Right now, if you have a will and you're divorced, that automatically revokes the will as to any reference to your ex-spouse, but that does not do anything - our current law doesn't do anything for life insurance beneficiary designations, pension and profit sharing designations or joint bank accounts. And I've had any number of cases I've seen where husband and wife get divorced - a relatively amicable settlement - they each go their own ways - husband or wife remarries but he or she forgets to change the beneficiary on the life insurance designation - that spouse passes away and bang the life insurance goes to the old wife instead of the new wife. Yes, people are genuinely unhappy and justifiably so in those circumstances. And again, you can say the people should have remembered to do that, but it's easy to forget that kind of stuff in going along with your daily business. And this just expands sort of what I was mentioning - the backstop coverage. You know, things that people don't think about. And again, it reduces litigation between the ex-spouse and current spouse as to those life insurance proceeds. CHAIRMAN PORTER: This wouldn't affect an intentional agreement in the divorce? MR. MANLY: No - no. This can definitely be superseded in the divorce or by contract or by subsequent redesignation of that ex- spouse. And that's really the -- there's -- there are some other technical changes in here but these are at least the ones that I view as sort of the high points. I think it's an excellent bill - I think it's something that you should pass out and should be enacted into law. CHAIRMAN PORTER: Thank you, Bob. Are there any questions? Representative Bunde. Number 406 REPRESENTATIVE BUNDE: You - you had mentioned that -- thank you -- that you were speaking as an individual and your subsection of the Bar Association. MR. MANLY: Correct. REPRESENTATIVE BUNDE: ....speak for the Bar Association? Will the Bar Association as a whole be taking a position? MR. MANLY: No. The Board of Governors takes the view that we are a nonprofit entity and they forbid anyone from taking a position on behalf of the Bar, unless the entire Board of Governors enact it - take that position. And as far as I know, the Board of Governors has never taken a position on any legislation, except their own sunset and their view is that they're afraid they'd have to give small rebates of your dues back if you opposed a particular view they took because of their nonprofit status. I'm not sure why sunset is exempt from that view but that's what they've told me. CHAIRMAN PORTER: Representative Green. Number 421 REPRESENTATIVE GREEN: Thank you, Mr. Chairman. You've indicated that this should reduce litigation. Is there any merit, do you feel that these changes are changes that should be known to people who prepare wills or especially these will kits that are still so popular. For example, you brought out in this automatic revocation that probably isn't covered in their will kit. MR. MANLY: Well, right now we do have automatic revocations for wills, so that is the current law. And the only thing we're doing is by this proposal is expanding that automatic revocation to life insurance and sort of your nonprobate assets - your things that aren't governed by the will. Certainly, I guess the effective date is - proposed effective date is January 1, 1996. Am I mistaken on that? That couldn't be. CHAIRMAN PORTER: January 1, 1997. MR. MANLY: 97 - I'm sorry. I think that gives a reasonable amount of time for people to become aware of the will and aware of the changes and it probably doesn't have any really traps for people in most cases, because really, you're helping people with things that they didn't consider rather than the other way around. Number 441 REPRESENTATIVE GREEN: Okay, that's what I was getting at. So the whole of what you're saying - or what I'm hearing you say then is you're patching all these holes so if there is an omission, it theoretically at least, would be to the benefit of that person who either made a will and forgot or didn't make a will at all. MR. MANLY: That's correct. CHAIRMAN PORTER: At least it answers the question. REPRESENTATIVE GREEN: Ya. CHAIRMAN PORTER: Bob, could you for me -- you've mentioned a couple of times in just here in this last explanation -- could you explain for me the difference between probate and nonprobate property? MR. MANLY: Sure. I guess the answer or the conclusion (indisc.- coughing) question or something like that -- I'm not sure the correct tautology there, but in any case probate assets are governed by your will; nonprobate assets are governed by some other legal contract. For example, life insurance. If you name an individual beneficiary, that's governed by the life insurance contract - where the money goes - not by your will, so it's generally considered a nonprobate asset. You could make it a probate asset by saying, "I give this life insurance money to my probate estate." But in the absence of that, it's a nonprobate asset. Likewise, a joint bank account. If it passes all to the survivor automatically by virtue of your contract with the bank, then it's a nonprobate asset. If it's a sole-named bank account, then it would pass in accordance with your will. CHAIRMAN PORTER: Would it be a correct over-simplification to say that nonprobate assets are things not mentioned in the will and probate assets are mentioned in will? MR. MANLY: Nope, that doesn't work because sometime -- usually in a will you have what's known as a residuary clause - everything I forgot to mention goes so and so. And just the mention or non- mention of an asset in the will doesn't control. For example, if I have a joint bank account with you and I say in my will that I want it to go to someone else, my will does not govern for the most part; it's gonna be the contract between you, me and the bank. So, it's not whether you mention it in your will; it's rather whether if you mention it in your will, your will controls where it goes. CHAIRMAN PORTER: Is there any general rule of thumb on contradictions between contracts and the will? MR. MANLY: The general rule is that if the outside contract governs the asset, then that's going to supersede the will. CHAIRMAN PORTER: Even though the will is made out (indisc.- coughing). MR. MANLY: Right. Because for example, I have a life insurance policy and I fill out my wife as the beneficiary. I subsequently make out a will and say, "No, my brother should be the beneficiary." As my contract is with the life insurance contract, I've told them, "Give the money to my wife." As a matter of law, I can't change the deal without letting them know in the form that they say I have to let them know, which is the beneficiary designation. CHAIRMAN PORTER: Any other questions of Bob? REPRESENTATIVE BUNDE: ...will by tritest abrogate that contract... CHAIRMAN PORTER: I just -- you know, the other thing is you have to die to be able to benefit. REPRESENTATIVE GREEN: Ya, you're dead right. MR. MANLY: One clarification, if I may. If you don't mention a probate asset in your will, it's governed by the laws of intestacy that we've just talked about - the first $200,000 of the spouse under these circumstances. And so a probate asset is governed by your will if you have one; but if you don't have one, then it's governed by the laws of intestacy. And you can always have sort of incomplete rules saying, "I give my house to Fred," but you don't say anything else - well the bank account goes, if it's not a joint bank account, in accordance with the laws of intestacy. CHAIRMAN PORTER: Bob, thank you. MR. MANLY: Thank you. I think my esteemed colleagues from the rest of the committee are going to correct me or disagree as they see fit because we are all testifying individually. CHAIRMAN PORTER: I would be disappointed if there weren't.... The next person I see would be Jerry. Did - did you want to testify, Jerry? Number 487 L. S. (JERRY) KURTZ, JR., ESQ. and ALASKA COMMISSIONER, NATIONAL CONFERENCE OF COMMISSIONERS ON UNIFORM STATE LAWS: Yes, I would like to testify but I suggest any other members of the probate committee wanted to first testify. CHAIRMAN PORTER: The only other person that I have signed up but I don't know if there's anybody here that wishes to testify that has not signed up - there is one. Okay. There are two. Well, I'll tell you what I'll defer to you guys to see what order you'd like to... That will allow me time to get this to you guys so that you.... Welcome Jerry. Number 496 JERRY KURTZ: Thank you. I am here representing the Alaska Commissioners appointed by the state to the National Conference of Commissioners on Uniform State Laws, which is where this animal you're looking at came from. The first thing I'd like to do is thank Bob Manly for making an extremely good presentation - far better than I could. Of the members on the Uniform Law Commission from Alaska, I'm the closest thing there is to a probate attorney. The rest of them have handled either no probate matters or relative few over the years. I retired from active law practice in 1991, and have my nose back in it on a very limited basis. I can safely say I've looked at one probate since 1991. That involved Montana and Alaska and we were very grateful that both states had the Uniform Probate Code. I'd like to -- and the point is that this Bar Committee has spent a lot of time on it, includes some good attorneys and includes attorneys like Mr. Manly who are heavily immersed in the probate field and have the kind of perspective that I do not have on what's going on in Alaska at the present time. The second thing I'd like to point out is that when this Uniform Probate Code was first enacted in Alaska in 1972, there was considerable opposition amongst part of the Bar for the very reasons that I've heard committee members mention - it was a long Code and it was complicated and it meant a whole lot of people had to read something new. But it was passed despite that and it has been an unqualified success. It's very hard. I don't think I've heard an attorney criticize the adoption of the Code for at least 20 years. The thing has worked beyond our fondest dreams and what we have before you for the most part an attempt to make it work better and a lot of those changes are changes that have been made to reflect not only the changes in family structure, but particularly the changes in nonprobate assets. The percentage of wealth that's held in nonprobate assets - retirement funds, mutual funds, stock funds, automobiles, things in houses, things that typically are held in joint tenancy behind a husband and wife so that they automatically go to the survivor without any infearced(ph.) Probate Code - the percentage of items in the typical person's estate has increased sharply over the last 30 to 40 years. And the best way to think about this is to look back at - at what your parents had when they - they passed away or what they have at this point and most of the assets that we talk commonly about today - the IRAs, the mutual funds - were unheard of in those days or were only possessed by a very few people. So the nonprobate aspects of the bill are, in many respects, just a catching up and they're, in my opinion, a vast improvement over the existing ones where frequently there was some difficulty in determining exactly what fell under those sections. This will help prevent litigation, it will help financial institutions which frequently hold money or stock funds or other similar securities- based properties that are transferred to somebody as a result of the death of the owner or the people. Number 499 MR. KURTZ: I'd like to - to - to briefly touch on two things that Bob did say that I might disagree with a tiny bit to satisfy your desire that we get some attorney disagreeing because we never agree completely on everything. But I want to preface it by saying that there's an attorney in this room and I have not talked to an attorney about this bill in the past years in Alaska or even on the Uniform Law Conference, who doesn't think that by and large these items contained in HB 38 are a substantial improvement over what we have now. The question was raised of why should the will not be given to the executor named in the will (indisc.) in court. In a surprising number of cases, the will initially never gets into probate. A lot of Alaskans die and they leave a will and whoever's named as executor can pick up that will when it's stored at the court and then they discover after they go along a little ways and maybe talk to an attorney and poke around and see what assets were there, that there really isn't anything in the way of assets - that they're all nonprobate assets or virtually all of them - so they don't need to probate the will. And so they just quit and may throw the will in the wastebasket when they're cleaning out their files or something else. And then some time later on - a year or two or three or maybe even four years later - an asset comes out of no where that nobody was expecting that really is part of the will - a piece of property is found... TAPE 95-60, SIDE B Number 001 MR. KURTZ: ...and nobody realized he owned it, and nobody can find the will. And I think particularly in this state, this is reason enough, we do have a record of having a fair number of lost wills up here. This is reason enough - once somebody puts one in the court to have the court preserve it, that it stay there. It doesn't hamper the executor and it really doesn't add any substantial expense. And that's just re-enforcement for what Bob said about why we should not change that existing provision in the Alaska law. The question of the elective share provision has been discussed a great deal around the country. Alaska's present bill, 308, chooses to keep our elective share provision exactly as it is now - substantially as it is now and I have very mixed feelings about that. The members of the probate committee obviously aren't unanimous; the members of the Uniform Law Commission members from Alaska aren't unanimous. At least one of them thinks we should go with the Uniform National Act; the rest of us are sort of spread all over the place. I think legislators often tend, when things are in doubt, not to disturb existing law that has worked and as a group of commissioners we aren't going to take any position on the issue and we think that the bill would be an excellent improvement for Alaska law exactly the way it is or if you choose to go to the uniform version which does have some theoretical appeal - and maybe we'd be better - I still have not solidly made up my mind - that's fine. But either way the important thing is that the bill should pass. I think what I'm saying is if you can't decide or if there is considerable controversy over it, please pass the bill anyway because you aren't changing that facet of Alaska law if you pass it the way it is. Number 024 MR. KURTZ: Now the only other real threat of opposition to this bill was mentioned by Bob and that's the question of whether the insurance industry will come in and oppose the bill on the grounds that the augmented estate, which is a fancy term to define what falls under the Probate Act for purposes of determining who gets what, that insurance proceeds will now be included in that augmented estate. And in Alaska, to date as far as we can figure out and I have talked to several insurance agents about it, members of the probate committee have also talked to some, there's no opposition to it. But I do have a letter in my file that I've had for some time from the American Council of Life Insurance and it's very strongly opposed to the change. I mention that only because - because it has been brought up and I don't want the committee to - to be surprised if it should come up later. It's a national organization. The main reason -- the main thing that seems to be aimed at is the situation Bob mentioned where somebody perhaps has a wife they're not getting a long well with, he has either a girlfriend or a brother or somebody else he would rather leave money to - under present law in Alaska, you can go out and (indisc.) pull cash out of your estate and buy a great large life insurance policy and have that go to that person and it will not be part of the augmented estate as it's defined in present Alaska law and split up. This bill would change that and I think the change is a good provision and I think everybody else who's testified so far agrees. CHAIRMAN PORTER: I have a specific question on that and then I guess a general question about the expense of probate. But in the fact situation you just presented, this bill becoming law would make that life insurance policy that I bought to favor my brother instead of my wife part of my estate if I die. MR. KURTZ: That's right. CHAIRMAN PORTER: How - but getting back to the discussion about the contract having precedence over the will - what would happen? This is an exception to that rule - in this case the will provision would.... MR. KURTZ: Would supersede the contract. CHAIRMAN PORTER: Supersede the contract. MR. KURTZ: For the sole purpose of determining the elective share (indisc.) the elective share of the surviving spouse under the augmented estate provision. CHAIRMAN PORTER: If - if I had directed 100 percent of that policy to my brother, under this law then my wife would retain a third of it or... MR. KURTZ: She would if she chose to do so. But she wouldn't just retain a third of that asset. You'd have to look at all of the assets of the estate and.... CHAIRMAN PORTER: ...come into the mix. MR. KURTZ: That's right. And - and it's interesting that we very seldom - or at least I've never been (indisc.). I cannot recall the (indisc.) of my law firm is. It's very seldom that this augmented estate even comes into play. Now it may come into play behind the scenes at times but to see those litigated outs very unusual. CHAIRMAN PORTER: Well, that - that brings me to my broader question. What is the expense of probate? In other words, does the value of the - this life insurance policy that results or accrues to someone by my death - is it diminished somewhat by some administrative probate cost because of this law now putting it into that? MR. KURTZ: No, it's not. It's - the augmented estate defines what percentage people will take, but the insurance policy money still doesn't go through the probate proceeding. In fact, I'm glad you brought that question up because in 1972, a great deal of the opposition to the adoption of the model act was caused by the impact it had on attorney's fees, which when I came to Alaska - I guess I'm naive - when I came to Alaska and practicing law in the early 60s, I was astonished to find that attorney's fees were based upon the percentage of the value of the estate. It had nothing to do with how much work you did or how complicated the estate was. The person got their affairs in pretty good order before they died - executed a good will - found his heirs paying the same attorney's fees as the one who just left everything completely hanging and screwed up. And partially as a result of the adoption of the Uniform Probate Code and anti-trust proceedings brought in various estates against bar associations, that's changed and today your probate fees are almost invariably based what it takes to untangle the estate and the court cost fees are based upon a sliding scale of what goes through the estate and the insurance policy still isn't going through the estate. What you have is a contract saying how it would be distributed. Number 087 CHAIRMAN PORTER: Well, these nonprobate assets that now are brought into the mix, so to speak, a percentage of that value is not taken by the probate process? MR. KURTZ: It's not being transferred automatically. They don't become part of the probate estate except for purposes for calculating a share of the estate. CHAIRMAN PORTER: What is then the basis for the expense of probate? MR. KURTZ: Typically, it's time and materials the attorney spends on the thing and the amount of fees - and I'll defer back to the Probate Committee on this because I haven't looked at it since 1981 - but it's a percentage of assets that actually pass through the estate. Now what the augmented estate can cause - let me take a fairly easy hypo - let's suppose you die with $500,000 of assets that go through the estate and you have that $1 million insurance policy you bought for your girlfriend that's outside of the estate and you're also still married and your wife says, "I'm entitled to a third of the augmented estate." The augmented estate, including the insurance policy, would be $500,000 plus a million - it's a million, five. So she is entitled to $500,000 of that but that's what she - she can get that much out of the estate without touching the insurance policy - I'm ignoring federal taxes which is a whole other story we don't want to talk about. But what the augmented estate does is define how much money we're looking at or how much value we're looking for determining the spouse's share but it does not control what property actually goes through the court proceeding and is subject of court fees. CHAIRMAN PORTER: And there isn't a fee to the state for for probating a will, there's not a fee to the state? MR. KURTZ: There is a fee for the estate and it's based upon the percentage of.... CHAIRMAN PORTER: Is that the motivation that you're talking about for someone losing the will and not taking it down to probate? MR. KURTZ: No, losing the will - an awful lot of people are made executors of wills who really are not very business like and they take care of the will in the same fashion they take care of their charge accounts and what have you - they're in a drawer some place and they have a lot of stuff in it - and when they realize they're executor, they start a new file in the drawer and they go through and determine there are no assets that need to be probated because everything's in joint tenancy - the car is, the motor home, the mutual fund has a pay to ex on my death clause and so on - and they conclude there's nothing to do and even if there is, throw the thing away. Or they move on and it gets lost in the clean out of their house or their apartment. CHAIRMAN PORTER: Even though current law says that they should take that will down and file it with the probate court? MR. KURTZ: Well, they have to file it with the probate court if they're going to probate it, but they may not need to probate it. CHAIRMAN PORTER: I'm missing something here. MR. KURTZ: If there are no assets that you have to have probate for, then you don't need to probate. There's no law that.... CHAIRMAN PORTER: But now you do under this bill? MR. KURTZ: No. CHAIRMAN PORTER: You just have to file it with... MR. KURTZ: Ya. CHAIRMAN PORTER: Okay. There's a difference. MR. KURTZ: Ya. CHAIRMAN PORTER: Representative Green. Number 129 REPRESENTATIVE GREEN: Thank you. Kind of piggybacking on the Chairman's question earlier. In your example of this five hundred and million dollar life insurance policy, the bottom line was that in fact the spouse only got one-third - she only got the $500,000 that she would automatically have gotten anyway. MR. KURTZ: Well in present law, that would the case and under the case it would still be the same. REPRESENTATIVE GREEN: Now would IRAs and other things also fall in the same category with insurance? MR. KURTZ: Yes. REPRESENTATIVE GREEN: And that also would still be (indisc.). MR. KURTZ responded affirmatively. MR. KURTZ: That's probably a good point for me to - to cease. I would like to mention one other thing and Bob emphasized it, but you can hardly emphasize too often. The simultaneous death provision is extremely important in terms of federal taxes. A lot of people, particularly again in Alaska, don't feel that they're wealthy people and they probably aren't, but they may have property that is valuable enough that it gets them into the federal estate tax situation. And if you have a family when you add up everything has $600,000 or $800,000 worth of assets or a million dollars, it's not unusual in this state at all to find that they have about $50,000 liquid assets they could put their hands on or 25 or 10. If the - there isn't a simultaneous or 120 hour survival rule and that thing gets with two chunks of federal income tax, it could be a lot tougher on the family or the surviving children than it would be otherwise. I don't think any of us up here are under the objection to try and keep money in Alaska and away from the federal government, if it's possible. Are there any other questions? I'll try to answer them. CHAIRMAN PORTER: Jerry, I see none. Thank you very much. Number 156 REPRESENTATIVE B. DAVIS: Excuse me, what - what is your last name? MR. KURTZ: Kurtz - K U R T Z. REPRESENTATIVE B. DAVIS: Okay. UNIDENTIFIED SPEAKER: Excuse me Jerry, just before you leave. On that last final point, under federal law if one spouse survives the other by just minutes, there still is the estate tax or is there some minimum survival time? MR. KURTZ: I think I'll refer you to Manly because I'm not sure whether there is a minimum survival time. I don't think there is under federal law. State law, what you're in effect you're doing is saying they died simultaneously if they die within 120 hours of each. That can help. It's very common for clauses to be put in wills saying that if you die within 30 days or 60 days or 90 days of each other that (indisc.) the wills of the concern simultaneously. UNIDENTIFIED SPEAKER: Okay, thank you. CHAIRMAN PORTER: I would just for the record indicate that Mary Ellen Beardsley from the Department of Law is here. If we have any questions that the attorneys that are testifying can't answer, we can always go to Mary Ellen in order to be responsive. Next I have Deborah Randall. Number 171 DEBORAH RANDALL, ATTORNEY, DAVIS AND GOERIG: Good afternoon. My name is Deborah Randall. I'm an attorney with Davis and Goerig. We're an estate planning firm and I've been practicing for about eight years. I don't really have that much to add to Bob Manly's comments. He did an absolutely fabulous job for you guys of outlining the high points of the bill. I guess I am the vociferous minority of the Probate Committee and my challenge to you is that the bill as it stands is a very good bill, but I think it could be even a better bill. And the reason I say that is for the very reasons that Bob pointed out some of the things were changed in this version of the bill that came out last year, House bill 307 which is now House bill 308, which was changed based on some input from one of the members of the Probate Committee and some of the objections were with regard to the elective share which Bob talked about and being that that is such a controversial subject there, the thought was we should maybe move that out of this bill because we don't want the whole bill to die. But I am definitely in favor that. I think it's wonderful and I would encourage if you ever have the time, I'm sure you're very busy, but this what I have as the uniform public co-article two which was put out by the Uniform Laws Committee which gives comment to all of these sections and it goes through a detailed approach as to why the uniform law commissioners have felt that this was a good thing to do. It's the vesting schedule marriage which Bob is opposed to and several members of our committee. However, I from a practicing point of view, have seen it where you have a client that comes in that for whatever reasons has not done a prenuptial agreement and is maybe into a second marriage, has children from a prior marriage and for their own reasons can't go through a divorce, you know, because that's very expensive, but yet wants to do something for the children from the prior marriage. Based on the way the law is if you've been married for one year, one day, one week, you're entitled to one-third of that person's estate. And so, you know I have seen concrete examples of where that has really gone afoul of what the person - the testator wanted. And it's for that reason that I felt that when I saw this first come out I was very much in favor of it. People say I'm cold hearted, that it takes the love out of marriage, but remember this is talking about situations where you want to disinherit a spouse. It's not talking about the provisions where you're leaving everything to your spouse and taking care of the spouse. So it might not come up a lot, but when it does come up in my experience I think this new vesting schedule could be really good. The other thing that I would definitely -- what was pulled out of this bill in which Bob commented on were the provisions that we're going to relax the formalities for will execution. Based on Peter Bordigan's(ph.) letter to the -- I guess with Sean Parnell's office, they've totally deleted those sections out. Basically what they were trying to do in here was lessen the formalities, and you have to understand statute of wills is centuries old. The whole idea, you know I'm sure when you think about it in your mind you think of this solemn occasion where you have to have two witnesses and the quilled pen and you have to make sure that you sign in the testator's presence. And the idea there was so that you would avoid people coming up and making wills for people like they do on all the soaps, you know, when they want to disinherit somebody they conger up a will and get false signatures. That's what the statute of wills was there to do. What this new revised law says is "Okay, we've got that," but what if somebody does not totally comply with the letter of the law. Are we going to throw out their intent? And what they tried to do here is say, "No, we are going to look at the testator's intent. What did the testator want to do?" And our job is to try to carry out what a testator wanted. And so what they did here is they said, "Lets lighten it up a little bit." Bob's comment was that they're afraid that this is gonna increase more litigation. Well the commentary in here, and they've taken this from other jurisdictions - I believe it was Australia - it's not one of the states, but that they were not getting increased, you know, battles over this. They we're not getting increased fighting which I'm surprised he would say it because there lawyers -- that's good for us. I mean the more fights, the more money we get. But the experience of this committee was contrary to that. It did not increase litigation. So as one of them now I was really sad to see that provision taken out because what I'd like to see this new revision do is to take the probate code and modernize it. Lets move into the 90s. You know we were back in the 70s, lets move into the 90s. So when I say to you that this is a very good law, I do believe that. This is wonderful. It's very complicated. I think you guys are fabulous to be able to wade through this. I can't even wade through it and I practice this day in and day out. But this commentary - this commentary is absolutely wonderful. I use it almost as a bible because it does explain what revisions were made. Bob has highlighted the major ones which are definitely a bonus. So the only thing that I would say to you is that, you know, the considerations are always there. What can you put in a bill and what can you not put in a bill get it to pass. My challenge is just the maybe the bill as it is could be made even better without totally jeopardizing the bill. And in that regard, I would suggest strongly looking at the two code sections that were taken out that had to do with the formalities of a will. Lets see those were exactly 13.12.502 and 13.12.503. CHAIRMAN PORTER: Representative Finkelstein. Number 241 REPRESENTATIVE FINKELSTEIN: Thank you Mr. Chairman. I really appreciate your testimony. And I can see on this last point how it may not necessarily result in more litigation because you, and tell me if this generalization is incorrect, if you do get more people into the category of improved will, the wills are going to be generally simpler documents than having to go into the whole probate code. I'd assume those people, if you can qualify a will, which they tend to be relatively straight forward allocation of assets, you don't have to go into searching for the third cousin and, you know, all the other things that are out there that aren't going to be as straight forward in the will so I assume that's part of the reason that you wouldn't have this much court costs if you succeed in qualifying more wills if the wills are simpler than the rest of the system. Number 252 MS. RANDALL: Well and the thing is that the standard is still clear and convincing evidence. I mean if you have not met with the formalities of the will execution, at least in the 502, you still have to go into the court and show by clear and convincing evidence that you tried to comply. I mean I'm talking about situations where maybe a witness - they were back in Dillingham or whatever, and they could only get one witness and our law required two witnesses. Are you going to throw out a will because you didn't have your two witnesses? I think that's what that section is trying to do. Now 503 takes it further. 503 says, you know, if it's -- it just says, "Although a document arriving was not executed in compliance, the document or value is treated as if it has been executed and compliance." And again, it's clear and convincing evidence. So you still have a high standard to meet and I think what they're saying in their commentary is because of that clear and convincing standard, it's not going to be easy for fraud to appear for people (indisc.) make up wills and increased litigation because you still have to show by clear and convincing evidence that that's what the testator wanted. Number 266 CHAIRMAN PORTER: I don't know, I can just create in my own mind a whole lot of scenarios that would lead to litigation, particularly any time there was an heir in the will who wasn't the heir in the stated intent by some other witnesses. We've been talking about these girlfriends. I guess if someone decided that they were gonna leave their estate to their girlfriend and the adult children would take exception to that and this gentleman dies, there is the will leaving everything to the girlfriend. If I understand the law now, that's a pretty straight forward transfer notwithstanding the hurt feelings of the children. But if the children wanted to get together and say, "We heard the old man say just a week before he died that it was his intent to change that because she had ticked him off," - I mean isn't that litigation? Number 281 MS. RANDALL: Well, you know, in my experience you're gonna get litigation. I mean people will be in litigation for a variety of reasons. I mean for executing a will, you're supposed to have - you know be of sound mind disposing memory. Well that's one of the very first challenges that somebody is going to make, "Well they were crazy as loon when they wrote this will," so even though if you don't have a leg to stand on I've still seen people come in and try to challenge a will. Number 286 CHAIRMAN PORTER: I have some experience trying to prove intent, you know in a criminal lawsuit and that's tough. That just adds to what you are very correctly saying. There is always room for litigation. MS. RANDALL: And there is always a spectrum too. I mean certainly you can talk at an extreme example where you probably do have some fraud and some collusion and some wrong doing. But then at the other end of the spectrum you have a person who is in a hospital who is trying to get a will done and because there weren't enough witnesses right before they died, they have one witness and you're gonna say, "Because you did not comply with the formalities of execution, we're gonna throw it out." So yes, you have a spectrum. I just would suggest that maybe you read the commentary, the uniform commissioners did address that issue of whether it would increase litigation and their finding was that there was nothing to substantiate that based on prior jurisdictions that have adopted this law. So what we're doing here is we're speculating what might happen which indeed might happen if you have the right facts and circumstances, but in my experience what I've seen to come into my office is more of the category I'm talking about where you have somebody who is trying to comply with the letter of the law but just can't do it for whatever reason. And then we, as lawyers, have a real uphill battle to try to get that will admitted and we may or may not. What this would do for us is help us. Number 303 CHAIRMAN PORTER: I guess what I'm asking you isn't there some middle ground between the general statement of whatever he intended and I don't know if that's what this language is, but that's what described to be as being. Some middle ground between that and specifically what you're referring to as would relate to an intent to meet the criteria but some physical explainable inability to do so shouldn't (indisc.). MS. RANDALL: And you can always make that argument to the court which is what we do. But this does -- again this is a clear and convincing standard which is where you're protection is built in. I mean I have to be able to come in and by, you know, using whatever evidence I have, and 502 allows me to bring in extrinsic evidence to establish for the testator's intent was. I still have the clear and convincing standard to me which is a very high standard and if I'm gonna get a lot of people opposing me, yes the litigation is gonna go up and the expense is gonna go up and that's happened to a daily basis. If somebody wants to contest a will, they can do that now today. So I just felt that this was a very progressive addition. I like to see it just based on my own experience and I was very sad to see the committee take a - adopt a position to remove that totally so.... CHAIRMAN PORTER: David. Number 319 REPRESENTATIVE FINKELSTEIN: Thank you Mr. Chairman. On the other issue in terms of when the spouse qualifies for the various thresholds of percents, what does that override? If you've got a case where they've been in one year and they meet such a percent of -- does that override prenuptial agreements? Are we only talking about a circumstance where these are assets and probates. MS. RANDALL: Absolutely (indisc.) talk before. I mean what I would - and Bob was telling you prior to the (indisc.) in here, if I had a prenuptial agreement in the case I'm thinking of I wouldn't have this problem because in a prenuptial agreement you can set forth your rise by contract. In the case I had, I had somebody who was in a second marriage, had not done a prenuptial agreement, wanted to disinherit his spouse, did not want to get a divorce and yet he'd been married for like two or three years and his spouse is automatically entitled to one-third. He did eventually die and you know what happened. I mean the children from the prior marriage just blew through the roof and they're stuck. It's one-third. Now under this vesting schedule which treats it like a partnership, it takes out the love, the romance of marriage, you know it's more of a, as they say, partnership approach to marriage. I think it fits in with a circumstance like this for a client like that. He could say, "Yes, you've been married three years, you're entitled to whatever it's 10 percent - 12 percent, but not automatically one- third." CHAIRMAN PORTER: David. REPRESENTATIVE FINKELSTEIN: What portion of -- how often does this provision occur? It's got to be a place where there is not a prenuptial agreement and it's got to be a place where the provisions of the will either -- well it actually only applies if there is no will. It isn't a matter because these just the minimums that a will has to meet. Isn't that correct? Number 344 MS. RANDALL: The elective share is an election the spouse takes which is contrary to what the will says or what the elective share is. Now you realize the way we interpret the elective - I mean the - excuse me - the intestate share spouses are gonna get a half in some circumstances or the whole estate in others. So the only time this augmented state usually comes up in my experience is in a situation where a person actually did a will and actually did specifically disinherit the spouse. REPRESENTATIVE FINKELSTEIN: So how often does it occur where a will is in violation of these minimums? I mean it sounds to me like it doesn't come up very often. Number 353 MS. RANDALL: Well in my office right now, just speaking today I've got three of these issues with the elective share pending right now and I work probably about 15 to 20 probates. So it is not a lot that they're there. They're definitely there and I'll tell you it's usually in second marriages. It's not the first marriage. It's the second marriage and you have kids from the previous marriage. That's when the situation comes up. So it does come up. It does happen. People do not always put their ducks in order. Unfortunately when they come into you, you know they haven't done the prenuptial. It's too late to do the prenuptial. So all that this law does is say, "We can make the law better." Based on our experience and experience, you know, this was the uniform law commissioners that looked at this issue, I can't take any credit for this, but just based on my experience I thought it was a good thing. I like things that move the law forward which is what I think this whole Article 2 does. I would just saying I think we could make it even better. CHAIRMAN PORTER: If that portion of the suggested Uniform Code were in law and two people go married, both for the first time, and one spouse died within a year and there was no will at all.... Number 373 MS. RANDALL: Then you don't have to worry about it because it would be covered by the intestate law, which in that case when there is no children, I believe they get 100 percent or if it's parents I guess it's 200,000 and then the parents get three- quarters, or the parents get one-quarter. So it would go to the intestate law which is much more generous. CHAIRMAN PORTER: This provision would (indisc.). MS. RANDALL: No. This is really a provision where a spouse has to make an election for this. This is something, like again, it doesn't automatically happen. You have to make an election for this and it usually happens when you've been disinherit (indisc.) will and you - the spouse says, "Wait a minute, I can get more under my elective share." So... Number 384 CHAIRMAN PORTER: There is an awful lot of room for comment outside of the law. MS. RANDALL: Right, it is a very controversial subject. In our probate committee alone we've spent probably several sessions talking about this so... Thank you. CHAIRMAN PORTER: Any questions? Thank you Deborah. And last but not least, an old friend Dick Thwaites. Number 390 DICK THWAITES: I'm Dick Thwaites. I've been in and around the estate planning community I guess since the early 70s, have chaired the probate committee, currently the elder law section of the Bar. In my discussion here I really wanted to relate to you that in all of these forms, Anchorage's State Planning Council, all of these areas - we've discussed this particular bill and as you can see between Bob and Deborah there was some controversy and so forth. Without exception I think in all of these forms, the bill that you have in front of you is the one that everybody can agree to. The only challenge here is that some people would like to see more than this. And while I wanted to point out to you was - I'm gonna save for a little later - some clarification on the attorney fee thing, but what I wanted to point out to you is that this bill merely adjusts and changes article two and some other provisions of the Uniform Probate Code. As big as this is, it really isn't the whole Uniform Probate Code. What happens is the uniform commissioners, as they go along, they look at different sections. It could be a year from now or two years from that you'll see another section of the Uniform Probate coming up for amendment. That's what I wanted to point out. UNIDENTIFIED SPEAKER: Thanks for the warning. MR. THWAITES: This particular section affects basically Article 2, but their Article 1 is kind of definitions and jurisdiction of things and so forth and they didn't feel that required any modification. This is sort of the administrative core of the Uniform Probate Code and quite frankly it's a very very beneficial act in that it brings up to date a lot of the things that have existed since 1967 and 69 - these things came out. And the estate planning community, as a whole, all supports what you have in front of you. I don't think you'll find anyone that disagrees with this change. There are some, however, as you've noticed that might like a little more change and it was with that in mind that I wanted to just clarify that because there are some things out there in some later sections. In the Uniform Probate Code, for example, is the section regarding guardianships and conservatorships and trusts and we're not even touching those in this section. Those are other articles. This is purely and most directly affecting just Article 2 of the code and it's a good article to implement and get some of these changes brought forward in, but there may be some others coming down the road in the future. We don't know what the uniform commissioners are gonna do, but we do support the concept of the Uniform Act and almost every Uniform Act I've ever seen come along has option A, B or C in it, so you end up selecting which are those are appropriate for your jurisdiction. Many of the sections, for example, in this particular one there was a different section if you were a community property estate than if you were a separate property estate. This bill contains the separate property provisions which are appropriate to Alaska. And I think by in large, everyone agrees that what's contained in here is the appropriate change at a minimum for this. There are some obviously who would like to see additional changes and more modifications and so forth to streamline certain other aspects of the administration process, but by in large everyone -- you can't get a unanimous vote on it because people want more. But by in large, everyone supports what you have in front of you right here. I mean this is a good solid piece of work to accomplish. Shifting back a little bit to you question before where you were addressing some of these issues with Jerry, I'd like you to know that Alaska happens to be one of five states and this is based on a study of the American College Trust Estates Council, Alaska is one of five states that does not have a percentage fee arrangement. In other words, in fact in Alaska the first $52,000 goes to surviving spouse and family members even before any attorney's fees can be taken. So if you have an estate under $52,000, you better figure out where you're gonna get paid before you go into the estate because you're not allowed to make any claim against the first $52,000 in the estate. Now it could be that you have separate agreement with a spouse or that certain other things are out there that are important to get done and in that instance where a lawyer is required, a lawyer can be taken. But it is possible, both in Fairbanks and Anchorage, to represent your self procure - that is to go into probate do the work on your own without an attorney. And the probate courts are sometimes very helpful in giving people the basic information they need. Usually what they do is they say the law library is right over there, go look it up. That's not maybe so helpful. There are some probate manuals and things like that and I am familiar with some people who have done that. Usually when they come into the lawyer offices after they've gotten into that process and discovered that maybe the planning that they had done as a family wasn't so good and there were some issues that didn't get resolved and maybe a lawyer needs to help them straighten those out. The state of Alaska actually only picks up $102.50. There is a $100 filing fee no matter what the size of the estate is and there is a $2.50 fee to the Department of Revenue for a determination of whether there is a tax or there isn't a tax and that's it. It's the same for every estate. Five states, Maine, Tennessee, Wisconsin, Idaho and Alaska do not have percentage fees. This is according to American college studies that were done. That means that in this state in Alaska you get (indisc.) dollar estate if you did all the planning right, the whole probate cost for six months or a year worth of work might be $1,500 or $2,000 depending on how much work is involved. On the other hand, you could have a $100,000 estate that might require $40,000 or $50,000 because everybody is fighting over every nickel and that just depends on how the planning is done and how the family relates to one another. So it's actually just paid for based on the amount of planning, the amount of work and the amount of fight that arises and toward that circumstance, I think Alaska has a pretty good program. It certainly is one of the least costly states. There are many experts who have been up here to talk to us from a community and legal education standpoint who have suggested that the standard living trust mechanism that is throughout the rest of the United States be a state planning tool is not necessary in Alaska because we don't have percentage fees. The personal representative doesn't get a fee based on the percentage. They only get reimbursed for what their expenses are and what work they do. The lawyer only gets reimbursed for what work is done and so it's basically a pretty equitable situation that if you do the work and you do the planning, there might not be such extensive fees involved. If you don't, if you leave it to chance then it depends on who is gonna be there at the time you pass away and who is gonna have their hand out to see what's gonna happen and that's where the fight usually occurs. Number 496 REPRESENTATIVE BUNDE: Mr. Chairman. CHAIRMAN PORTER: Representative Bunde. REPRESENTATIVE BUNDE: A bit off the subject, but I understand that the Department of Revenue could give you a determination for $2.50. MR. THWAITES: Well, not exactly. The Department of Revenue will give you a certificate for $2.50 saying that you have presented to them information saying either there is a federal estate tax return due or there is not. If you send in a report saying there is not, in essence what happens is they send you a certificate back which is an estate tax closing letter and the probate court won't close the estate until they have that certificate back. So if there is a tax due, state of Alaska would like to know that it's received it's share of the federal tax or if there is no tax due then they want to know that. I think that's the only department in state government who could send a letter for under $25. I think maybe that needs to be looked at. CHAIRMAN PORTER: That's only because they - half of those circumstances get money back from the percentage of the tax. Dave. REPRESENTATIVE FINKELSTEIN: Thank you, Mr. Chairman. Of course they actually don't send the letter for $2.50, we just don't charge enough I'm sure, which brings me to the question of there is a bigger picture and I don't particularly understand this world at all. What is the state getting out of these from any sort of tax that compensates for the court costs and other costs involved? Looking at the whole picture of any other taxes, what does the state get for a case going through the court system. Number 520 MR. THWAITES: Well there is no tax in the court system that is assessed by the state. REPRESENTATIVE FINKELSTEIN: This just shows how little I know about it. Do we have any separate inheritance taxes or.... MR. THWAITES: No, the federal government has a federal estate tax and in the federal estate tax they have a provision that says basically a certain percentage of the federal tax will be given as a credit back against the state estate tax or inheritance tax. Now an estate tax is a tax against the estate. An inheritance tax is based on who is receiving the property. So an inheritance looks at it from the standpoint that if you're a spouse or a child, it's a low rate. If you're a stranger or some more distant relative, it's a higher rate. CHAIRMAN PORTER: Is this an IRS provision? MR. THWAITES: No, some states have inheritance tax, but here we have what is referred to in the industry is a piggyback tax. And basically the piggyback tax is out of a - if there is a $2 million estate and the amount of tax is payable if the estate planning was done right were in the vicinity of say $300,000, the federal government says we'll allow you a credit of something like say $50,000 for the state credit. In other words, you only have to send up $250,000, you send the other $50,000 to the state. REPRESENTATIVE FINKELSTEIN: If there is a stated estate tax. MR. THWAITES: Yes, and Alaska has adopted the piggyback tax rule for the feds which means it's sort of self policing because the state of Alaska, Department of Revenue, doesn't have to have a division out there doing the administration. They know that anybody whose subject to the federal tax is also subject to the state and they require -- with the $2.50, they require a copy of the federal form 706 to be filed, which looking down they see that the state of Alaska is entitled to a certain amount and they want to know where their check is. And then you get the $2.50 closing letter back after you send them the $80,000 check or whatever the percentage is that belongs to the state. It's kind of self policing because nobody is gonna do anything with the feds because of the threat there I think. CHAIRMAN PORTER: Instead of a credit then it's an actual refund. Well no I guess... MR. THWAITES: No, when you file your 706 federal return, it's required to be filed at the end of nine months. You can get an extension to 15 months. The state estate tax is due with 15 months. CHAIRMAN PORTER: Is this piggyback provision somewhere in the probate code? Is that where it is? MR. THWAITES: Yeah, it's Department of Revenue. REPRESENTATIVE FINKELSTEIN: Mr. Chairman, for our next consideration of this bill during session could we try to find out what we get each year in state estate taxes? I didn't even know it existed. It might be - do you have any idea on what... UNIDENTIFIED SPEAKER: I don't think this bill would affect that one way or the other. REPRESENTATIVE FINKELSTEIN: No, prior to finding this out I was thinking how can we add on some fees to recoup some of these costs. There is enough money coming in to cover the costs then it may not be an issue, but I think we do need to try to cover our costs where necessary especially on the large settlements. CHAIRMAN PORTER: Any other questions of Dick. If not, Dick thank you very much. I have no one else signed up to testify. Is there anyone here who wishes to give testimony on HB 308 that has not? Seeing none, Mr. Sponsor is there anything else you'd like to...? REPRESENTATIVE FINKELSTEIN: No thanks, Mr. Chairman, I just appreciate you holding a hearing on the bill during the interim. Visit it again during session. CHAIRMAN PORTER: It was helpful to me and I know to the other members and we can now quite frankly read this and have a clue as to what it was. REPRESENTATIVE B. DAVIS: Mr. Chairman, I'd like to know how I could get a copy of that commentary. What would I have to do? How would I go about it? It would be better to do it here. CHAIRMAN PORTER: Representative Finkelstein. REPRESENTATIVE FINKELSTEIN: Thank you Mr. Chairman, I too will try to (indisc.) and come up with more specific issues is there any. The only one that hits me so far which if there is any way to get a little bit material when we take this up is this issue that came up in regard to the circumstance when the will is in conflict with the minimums required and on that one I thinks can be real helpful for me to have both the current provision is in this bill without change the existing law and the proposed changes that weren't adopted just so we could have both sides of it to discuss at that point because it -- I think the other -- I didn't find any that I felt were particularly controversial, but I think this one is (indisc.). CHAIRMAN PORTER: Well in effect, that provision is not in front of us. Do you want to bring it in front of us? REPRESENTATIVE FINKELSTEIN: Yes. CHAIRMAN PORTER: Oh sure, thanks. REPRESENTATIVE FINKELSTEIN: I don't know exactly where I follow it either, but I just think it isn't a particularly heartless thing to take it on because while there may be some spouse that's losing out somewhat, a particular percent, there is a whole bunch of other people involved too which are relatives and various.... TAPE 95-61, SIDE A Number 001 REPRESENTATIVE FINKELSTEIN: It's certainly better we do it in the committee than try to deal with it on the floor. This kind of bill, you know, has got terrible (indisc.) certainly encourage our getting it onto the floor early because this thing can be so (indisc.), everyone has had some experience. CHAIRMAN PORTER: I'll tell you what. I'll make you a deal David. The bill is quite weighty as it is. If you want to look into that issue and propose an amendment, we can certainly look at it. The little discussion that I've had on it, it would dominate the discussion with 1/100 of what the value of the rest of the bill is and I want to try to avoid that. Is there anything else to come before the committee? If not thank you very much, we're adjourned.
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