Legislature(1993 - 1994)
01/14/1994 01:15 PM JUD
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
HB 280 - UNIFORM CUSTODIAL TRUST ACT Number 085 CHAIRMAN PORTER moved on to HB 280 and invited Art Peterson to testify. Number 086 ART PETERSON, an attorney in private practice, and Uniform Law Commissioner for Alaska, asked that KAREN BRAND testify first. Number 090 KAREN BRAND, legislative aide to Representative Carl Moses, prime sponsor of HB 280, testified on the basic definition of a trust, defined as the care and management of property or funds by a person or a bank for someone else. She informed the committee that, if enacted, the bill would not change any existing law, but would add a new section to the Uniform Custodial Trust Act (UCTA), which makes the benefits of trusts available to everyone in Alaska. She said there are four basic benefits of the trust. First, trusts will be inexpensive to create. Second, the trust is simple to create by basically setting forth a set of guidelines that can be easily filled out. The third characteristic is control, whereby under the UCTA the control remains with the individual setting up the trust, at which time if the individual becomes incapacitated, the trust will take over and care for and manage the assets. She continued by saying the last characteristic is that the trust is comprehensive, including physical property, stocks, bonds, intangibles and other financial assets. MS. BRAND said the adoption of the UCTA would benefit all Alaskans, as well as anyone who anticipates being incapacitated at some time and wants to be assured their belongings will be properly cared for in the manner that they had set out. Ms. Brand said the most likely users would be senior citizens and persons leaving the country temporarily. She stated the UCTA had been adopted in seven other states and was introduced in the 17th Alaska Legislature, voted out of the House unanimously, but due to a lack of time did not get a hearing in the Senate. Number 185 REP. GREEN asked how would UCTA affect customary method of leaving things through a will. Number 195 MS. BRAND said that it was her understanding that if an individual set up a trust and a will, if the trust says that certain property will be removed from the estate and cared for or managed in a particular way, then it would come out of the estate first, then the will would dispose of the rest of the property as the will deems. She further said that if someone has both a trust and a will, they can put in the will that in case of death, the trust is abolished. Number 210 REP. GREEN asked, If you could do this through trust, would you need a will? Number 219 MS. BRAND said the main purpose of the UCTA was for someone who anticipates being incapacitated for a time. She said she believes the main focus is that and not for death. It will care for assets if death occurs, but the focus is incapacity. Number 238 MR. PETERSON commented that this type of trust was one means of avoiding some of the complications of probate, so as you take the assets of whatever part of your assets you want to designate and put in this trust, that's out of the estate that would go under your general will. You can create the beneficiary of the trust as yourself or someone else, so it's extremely flexible. Mr. Peterson continued, saying that if you create it for the benefit of someone else, you are then going outside of the probate system, thus avoiding the expense, the delay and complications of probate. He said it is essentially the best of both worlds. Number 258 REP. GREEN commented that maybe this is a good vehicle; however, he thought it was temporary, and asked if it could be made permanent. Number 266 MR. PETERSON responded, yes, although he would not characterize it as having a higher strength, but many see it as another way of dealing with your assets. Number 275 CHAIRMAN PORTER summarized by saying you could use this as a will and set it up to function that way. Number 285 MR. PETERSON added one point to Chairman Porter's statement, saying that just as you can give something to a son or daughter or friend right now, thus depleting the amount of your estate, you could create a trust that would have that trust based on some contingency, incapacitation, death, and a whole range of things that can be handled by this type of instrument. Number 300 REP. JAMES raised a question about the competency of the individual given the trusteeship, and asked if there was a provision in the bill addressing what to do if the individual is not competent. Number 316 MS. BRAND replied that the owner, the person that sets up the trust, when they set up the trust, whoever they choose to be the manager, and if at some point the owner doesn't think the manager is capable of managing the trust in the way initially intended, then the owner can certainly change that. Ms. Brand said that the owner can change the beneficiary or the person managing the assets at any time until the owner becomes incapacitated. Number 330 REP. JAMES clarified for Ms. Brand the question she was asking which was, Is there any protection for the ability of the person setting up the trust over the person caring out the trust? Number 341 MR. PETERSON answered that he didn't know precisely, but he thought it would be subject to the same kind of challenge for incapacity. He said related to that is the fact that someone, a creditor for example... if an individual wanted to set up a trust, but became incapacitated first, under Section 40 that creditor could put his/her debt to the individual in a custodial trust, and if it's over $20,000 (an arbitrarily selected figure) then it has to go to court to prove that you are indeed incapacitated and this is something that will protect your assets, etc. MR. PETERSON continued that his explanation was a related answer, but he would have to check this again to make sure how the statute deals with it. Number 364 REP. JAMES indicated that her concern related to an individual being partially incapacitated and finding somebody to administer it, but if someone convinced the individual to set up the trust when the individual was partially incapacitated, you wouldn't know about it until it was too late whether the individual was in sound mind when they set up the trust. Rep. James said she didn't want to set up a condition whereby someone could be misused. Number 380 MR. PETERSON responded that the whole thrust of this act is to protect that person, but if someone is taking advantage of that person and the person really is incapacitated, then that would be subject to attack whether the bill provides for it or whether that's thrown back to common law, the general concept of law, he could not answer. Number 389 CHAIRMAN PORTER indicated that he believed the same scenario could be used for power-of-attorney, and an unscrupulous person could go to a senior citizen, and does, but a relative or other interested parties could challenge that action. Number 395 REP. GREEN commented that the legislation doesn't provide for witnessing, which might be construed as a little loose. He also asked, If the trustee changes their mind in the interim, does the trustee have to carry out their duties? Number 414 MR. PETERSON pointed out Section 30, which sets out the statutory form that tells the receipt and acceptance of the custodial trustee so that a person could not be forced to be a trustee. Number 425 REP. GREEN asked about the part about witnessing. Number 430 MR. PETERSON indicated that it does not have to be witnessed, it's supposed to be kept simple. He also stated that the scenario brought up by Rep. James would be just a tiny percentage of cases, because in virtually all instances the person is going to be in full capacity and in fact, is naming himself or herself as beneficiary. The typical benefit is for the individual setting up the trust. Number 435 CHAIRMAN PORTER said the main emphasis is to be able to use your assets for your benefit while you're alive but incapacitated. Number 444 MR. PETERSON said he wanted to put a few comments on the record. He said he strongly supported the bill and wanted to mention that he had additional material, including the Uniform Law Commissioners pamphlet, which was in the members packet. Mr. Peterson continued by saying the whole point of HB 280 was to make it cheap, make it simple, easy to create, easy to manage, can be used to avoid probate, can be used in a variety of ways, and sets up the framework by giving language for the trust, giving language for the acceptance by the trustee, has provision telling the duties of the trustee, the consequences of various kinds of acts so people can easily refer to it and not have to pay lawyers, bankers, etc. to devise some complicated trust system. Number 482 REP. JAMES asked about the taxability of the trust. Number 488 MR. PETERSON answered that if it was income producing property, then a tax return would have to be filed with that income included. Number 490 CHAIRMAN PORTER asked if there was a national commission similar to the state commission. Number 503 MR. PETERSON replied that the full name was the National Conference of Commissioners on Uniform State Laws, which was the formal and official name, but it has recently been shortened to Uniform Law Commissioners. He said each state appoints its own group of commissioners, usually a gubernatorial appointment, as it is in Alaska. Number 525 CHAIRMAN PORTER asked if Mr. Peterson participated in national meetings. Number 528 MR. PETERSON said he does, at the national annual meeting, and a number of committees of the organization meet throughout the year. Number 559 REP. NORDLUND said he wanted it on the record that he supports the legislation, and he commended Mr. Peterson for his work, which was mainly pro-bono. Number 569 REP. DAVIDSON also commended the legal community for its participation in pro-bono work. He asked, If a trustee is removed for malfeasance, what recourse is there against the trustee? Number 590 MR. PETERSON referred to Section 140 and 150 which address the issue. He said he was not an expert in this specific area, but the trustee duties are subject to a fiduciary obligation, and if the trustee fails to perform that or does something fraudulent, then that would be subject to, 1) criminal action, and 2) termination of the trustee responsibility by a court. Mr. Peterson said he could not tell the committee that it would be automatic, because it would probably have to go to court. REP. DAVIDSON asked if there might be areas that are less than secure for the beneficiaries. Number 614 MR. PETERSON responded that he couldn't answer because of his own unfamiliarity with it, but the bill sets out a tight set of obligations by the trustee. He said that if you are talking about children of the beneficiary, they would have to go to court to terminate the role of the trustee. Number 625 REP. DAVIDSON said he was just wondering about safeguards for minors. Number 630 MR. PETERSON explained that the intent has been to provide all the safeguards necessary and the gap is in his own knowledge, not in the bill itself. Number 637 BOB BERRYHILL, representing the Alaska Association of Retired Persons, testified in favor of HB 280. Number 647 REP. JAMES moved for passage of HB 280 with individual recommendations. CHAIRMAN PORTER, hearing no objections, declared HB 280 passed from the committee with individual recommendations. He then brought SB 45 to the table.