Legislature(2007 - 2008)CAPITOL 120

04/04/2007 01:00 PM JUDICIARY


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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
*+ HB 196 HANDLING MATTERS AFTER A PERSON'S DEATH TELECONFERENCED
Heard & Held
*+ HB 197 TRUSTS TELECONFERENCED
Moved Out of Committee
*+ HB 201 UNIFORM ACT: PROPERTY INTEREST DISCLAIMER TELECONFERENCED
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
HB 196 - HANDLING MATTERS AFTER A PERSON'S DEATH                                                                              
                                                                                                                                
1:06:12 PM                                                                                                                    
                                                                                                                                
CHAIR RAMRAS announced that the  first order of business would be                                                               
HOUSE BILL NO.  196, "An Act relating to the  handling of matters                                                               
after a person's death."                                                                                                        
                                                                                                                                
1:07:23 PM                                                                                                                    
                                                                                                                                
JANE  W.  PIERSON, Staff  to  Representative  Jay Ramras,  Alaska                                                               
State  Legislature, explained  on behalf  of the  House Judiciary                                                               
Standing Committee, sponsor  of HB 196, that  this legislation is                                                               
one of three  bills written with the intention  of keeping Alaska                                                               
competitive in the trust market.   House Bill 196 provides that a                                                               
will's  penalty clause  for contesting  the  will or  instituting                                                               
other  proceedings   applies  even  if  probable   cause  exists;                                                               
currently any such  clause in a will is unenforceable.   The bill                                                               
also amends AS 13.16.680(a) such  that the statement that must be                                                               
contained  in the  affidavit used  by a  decedent's successor  to                                                               
collect  personal property  from  another  person shall  indicate                                                               
that the value of the entire  estate does not consist of personal                                                               
property valued  at [more] than  $25,000 excluding  vehicles that                                                               
do not exceed a total value of $100,000.                                                                                        
                                                                                                                                
MS. PIERSON  explained that HB  196 also adds new  subsections to                                                               
AS 13.33.101.   Proposed subsection  (d) pertains to  non probate                                                               
transfers after  a person's death;  this subsection  will protect                                                               
an  individual's  life  insurance contract  and  retirement  plan                                                               
debts  from the  claims of  creditors.   Proposed subsection  (e)                                                               
describes situations  in which  proposed subsection  (d) applies.                                                               
Proposed subsection  (f) stipulates that subsection  (d) does not                                                               
limit the  rights of the  owner of  a life insurance  contract to                                                               
pledge or assign the benefits  of that contract as collateral for                                                               
his/her debts.  Proposed subsection  (g) defines the terms, "life                                                               
insurance contract"  and "retirement  plan" as  they apply  to AS                                                               
13.33.101.     Section  5  of  the   bill  contains  transitional                                                               
provisions regarding applicability.                                                                                             
                                                                                                                                
REPRESENTATIVE SAMUELS sought  clarification regarding Section 1,                                                               
which would  allow a  will to contain  a provision  penalizing an                                                               
interested  party  for contesting  the  will  even with  probable                                                               
cause.                                                                                                                          
                                                                                                                                
1:12:12 PM                                                                                                                    
                                                                                                                                
DAVID  G. SHAFTEL,  Attorney at  Law, explained  that there  is a                                                               
similar statutory provision pertaining  to trusts; these types of                                                               
clauses are common and are  designed to ensure that beneficiaries                                                               
don't  challenge a  will, particularly  just for  the purpose  of                                                               
placing themselves in a bargaining  position - such persons won't                                                               
be able  to raise a  challenge by  filing a lawsuit  without also                                                               
running the  risk of forfeiting the  proceeds of the will.   Many                                                               
people feel  that when they write  a will or a  trust, they don't                                                               
want  the beneficiaries  to challenge  the  will or  trust.   The                                                               
problem  with  including  the   aforementioned  type  of  penalty                                                               
provision in a will is that  current statute says that if one has                                                               
probable cause, then  any penalty clause included in  the will is                                                               
unenforceable.    He  opined  that  this  loophole  creates  more                                                               
litigation.  He then mentioned  that if [a potential beneficiary]                                                               
entices  someone to  write his/her  will in  a certain  way, that                                                               
could  constitute duress  or  undue influence,  and  such a  will                                                               
could still be challenged even under the bill.                                                                                  
                                                                                                                                
[Chair Ramras turned the gavel over to Representative Coghill.]                                                                 
                                                                                                                                
MR. SHAFTEL,  in response to  a question,  said that if  a family                                                               
member  drafts a  will and  then benefits  from that  will, there                                                               
will be  a strong presumption that  the will is invalid  and that                                                               
the  family member  committed fraud  or exerted  undue influence.                                                               
He posited  that Section 1  will protect a person's  will against                                                               
frivolous challenges.   In response  to a question,  he suggested                                                               
that [Section 1] will bring  wills on par with trusts; currently,                                                               
a  similar penalty  provision could  be included  in a  trust and                                                               
that trust  could not  then be  challenged regardless  of whether                                                               
there is probable cause.                                                                                                        
                                                                                                                                
[Representative Coghill returned the gavel to Chair Ramras.]                                                                    
                                                                                                                                
1:20:30 PM                                                                                                                    
                                                                                                                                
RICHARD  S. THWAITES,  JR.,  Attorney at  Law,  offered that  the                                                               
issue  [of a  potential beneficiary  exerting undue  influence on                                                               
someone who  is creating a  will] has been complicated  in recent                                                               
years  by  elder  law  and  disability  law;  many  [estate  law]                                                               
practitioners, because  of "special needs trusts,"  often find it                                                               
necessary  to  include language  in  a  will that  disinherits  a                                                               
particular potential beneficiary  from the main part  of the will                                                               
in  order  for   the  special  needs  trust   to  remain  intact.                                                               
Practitioners view  such "disinheritance"  language as a  kind of                                                               
penalty  clause,  and  Section  1 would  allow  practitioners  to                                                               
safely  create  such special  needs  trusts,  particularly for  a                                                               
disabled family member or a minor.   There has been an increasing                                                               
need for  such a statutory provision  as will and trust  areas of                                                               
the law evolve.                                                                                                                 
                                                                                                                                
MR.   SHAFTEL,   in  response   to   a   question,  offered   his                                                               
understanding that  there are not specific  statutes that address                                                               
exerting  undue influence  on someone  creating a  will; instead,                                                               
case  law  addresses  that  point.   In  response  to  a  further                                                               
question, he  said he  doesn't know of  any litigation  in Alaska                                                               
regarding  exerting   undue  influence.    Penalty   clauses  for                                                               
contesting a will are meant to  preclude one from bringing a non-                                                               
meritorious claim in  an effort to obtain leverage;  if one truly                                                               
has  a meritorious  claim -  for example,  a claim  of duress  or                                                               
undue influence  or incapacity -  the will  or trust will  be set                                                               
aside.                                                                                                                          
                                                                                                                                
MR. THWAITES offered that [AS  13.12.501] says, "An individual 18                                                               
or more years of age who is of  sound mind may make a will.", and                                                               
that  the  accompanying  notes  speak  to  the  issues  of  undue                                                               
influence,  old   age,  debility,  sickness,   and  presumptions.                                                               
Furthermore, under  AS 13.12.504, which pertains  to self proving                                                               
wills, witnesses to  the execution of the will  are required, via                                                               
an affidavit, to  swear to the fact that they  witnessed the will                                                               
in the presence  and hearing of the person signing  the will, and                                                               
that to the  best of the witnesses' knowledge  the person signing                                                               
the will at the  time was 18 years of age or  older, was of sound                                                               
mind, and was under no constraint or undue influence.                                                                           
                                                                                                                                
1:27:26 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HOLMES questioned  whether  such  a clause  would                                                               
cause  a person  to not  bring even  a meritorious  claim forward                                                               
simply because of the risk of losing his/her inheritance.                                                                       
                                                                                                                                
MR. SHAFTEL  acknowledged that possibility, but  pointed out that                                                               
the decision of  whether to include such a clause  rests with the                                                               
client.  He offered his belief  that if there really is something                                                               
wrong,  a potential  beneficiary will  go ahead  and contest  the                                                               
will.  In response to a  question, he explained that the group of                                                               
attorneys, when  they recommended  adding a similar  provision to                                                               
Alaska's  trust law,  simply overlooked  having such  a provision                                                               
added to  Alaska's laws regarding  wills; the addition of  such a                                                               
provision should have been made to both laws at the same time.                                                                  
                                                                                                                                
REPRESENTATIVE  GRUENBERG asked  what  the  interplay is  between                                                               
"these statutes" and the normal  penalties for frivolous lawsuits                                                               
as provided for under the Alaska Rules of Civil Procedure.                                                                      
                                                                                                                                
MR. SHAFTEL opined that probate  litigation is more vulnerable to                                                               
abuse and delay.  Furthermore,  the person challenging a will may                                                               
not be  able to pay the  prevailing party's attorney fees  and so                                                               
those  court  rules may  not  really  act  as  a deterrent.    He                                                               
surmised  that  that  is  why  almost  every  state  has  similar                                                               
statutory language regarding such penalty clauses.                                                                              
                                                                                                                                
REPRESENTATIVE  SAMUELS [referring  to proposed  AS 13.33.101(d)]                                                               
questioned whether  this provision  could be  used to  hide money                                                               
from creditors.                                                                                                                 
                                                                                                                                
MR.  THWAITES [instead  offered the  following comment  regarding                                                               
proposed AS 13.16.680(a):]  The  monetary limits included therein                                                               
were carried through in the  probate code without any adjustments                                                               
to date, and were meant to be applied to smaller estates.                                                                       
                                                                                                                                
REPRESENTATIVE GRUENBERG [referring  to proposed AS 13.33.101(d)]                                                               
asked  whether that  provision could  be used  to immunize  one's                                                               
self from  child support claims; for  example, if one put  all of                                                               
one's assets into a life insurance or annuity policy.                                                                           
                                                                                                                                
MR. THWAITES  offered his understanding  that child  support "has                                                               
something referred to as a  'super lien,'" wherein money owed for                                                               
child support would not be available to other creditors.                                                                        
                                                                                                                                
REPRESENTATIVE  GRUENBERG expressed  concern about  child support                                                               
and taxes owed.                                                                                                                 
                                                                                                                                
CHAIR  RAMRAS offered  his  belief that  "this"  only applies  to                                                               
small estates,  and all other  estates would be subject  to child                                                               
support claims.   In response to a comment, he  remarked that the                                                               
bill may not cover every potential situation.                                                                                   
                                                                                                                                
REPRESENTATIVE  HOLMES offered  her  understanding  that if  back                                                               
child support  is due, then a  super lien will take  into account                                                               
that  important  exception.   She  suggested  that the  committee                                                               
receive more  guidance on  that issue,  but acknowledged  that it                                                               
might already be addressed in some other fashion.                                                                               
                                                                                                                                
1:43:01 PM                                                                                                                    
                                                                                                                                
MARY    ELLEN    BEARDSLEY,     Assistant    Attorney    General,                                                               
Commercial/Fair  Business  Section, Civil  Division  (Anchorage),                                                               
Department of  Law (DOL),  relayed that  she would  research that                                                               
issue  further, adding  that she  would  like to  have the  issue                                                               
addressed if in fact there is a need to do so.                                                                                  
                                                                                                                                
MR.  SHAFTEL remarked  that proposed  AS 13.16.680(a)  will alter                                                               
existing statute,  which currently  contains a  $15,000 exemption                                                               
allowing the  avoidance of a  probate procedure; under  the bill,                                                               
the amount would be raised to $25,000.                                                                                          
                                                                                                                                
CHAIR  RAMRAS  acknowledged  that  point, but  relayed  that  the                                                               
committee  is seeking  to remedy  a possible  oversight regarding                                                               
child support claims.                                                                                                           
                                                                                                                                
REPRESENTATIVE  GRUENBERG said  he  isn't sure  that proposed  AS                                                               
13.33.101(d)  only applies  to small  estates.   Referring to  AS                                                               
13.16.680(a), he  questioned whether  it would permit  people who                                                               
owe child support  to simply purchase personal  property in order                                                               
to avoid paying child support.                                                                                                  
                                                                                                                                
MS. BEARDSLEY said she will  provide the committee with an answer                                                               
to the issue of child support claims within a day.                                                                              
                                                                                                                                
REPRESENTATIVE GRUENBERG suggested that if  the bill is held over                                                               
in  order to  address  the  issue of  child  support claims,  the                                                               
committee could move quickly on it the next time it is heard.                                                                   
                                                                                                                                
CHAIR  RAMRAS, in  response to  a  comment, remarked  that if  an                                                               
amendment  is needed  to address  that  issue, it  would be  more                                                               
appropriate  to  consider  it in  the  House  Judiciary  Standing                                                               
Committee  rather  than  in  either   the  House  Rules  Standing                                                               
Committee or on the House floor.                                                                                                
                                                                                                                                
CHAIR  RAMRAS, after  ascertaining  that no  one  else wished  to                                                               
testify, closed public testimony on  HB 196, and relayed that the                                                               
bill would be held over.                                                                                                        
                                                                                                                                
[STEPHEN E. GREER, Attorney at  Law, later in the meeting, during                                                               
discussion of  another bill, remarked  that HB  196, particularly                                                               
the  provision   pertaining  to   life  insurance   benefits  and                                                               
retirement plans, "is meant to protect the little guy."]                                                                        
                                                                                                                                
[HB 196 was held over.]                                                                                                         
                                                                                                                                

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