Legislature(2017 - 2018)GRUENBERG 120

04/12/2017 01:00 PM JUDICIARY

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Delayed to 15 Minutes Following Session --
+= HB 170 AK SECURITIES ACT; PENALTIES; CRT. RULES TELECONFERENCED
Moved CSHB 170(JUD) Out of Committee
+= HB 200 NONPARTISAN OPEN PRIMARY ELECTIONS TELECONFERENCED
<Bill Hearing Canceled>
+= HB 208 TRUSTS; COMM PROP TRUSTS; POWERS OF APPT TELECONFERENCED
Heard & Held
+ HB 175 US PRESIDENT ELECT. POPULAR VOTE COMPACT TELECONFERENCED
Heard & Held
-- Testimony <Invitation Only> --
*+ HB 223 MUNICIPAL PENALTY PROVISIONS TELECONFERENCED
<Bill Hearing Canceled>
-- Public Testimony --
Uniform Rule 23 Waived
+ Bills Previously Heard/Scheduled TELECONFERENCED
        HB 208-TRUSTS; COMM PROP TRUSTS; POWERS OF APPT                                                                     
                                                                                                                                
2:17:22 PM                                                                                                                    
                                                                                                                                
CHAIR CLAMAN announced that the  first order of business would be                                                               
HOUSE BILL  NO. 208,  "An Act  relating to  trusts and  powers of                                                               
appointment; and providing for an effective date."                                                                              
                                                                                                                                
2:18:32 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE DELENA GOODWIN  JOHNSON, Alaska State Legislature,                                                               
paraphrased   her  sponsor   statement,   as  follows   [original                                                               
punctuation provided]:                                                                                                          
                                                                                                                                
     Alaska has  set a precedence  as being a leader  in the                                                                    
     Nation's  estate  and  tax  planning  Industry.  Banks,                                                                    
     trust companies, Alaskans, and  Americans from all over                                                                    
     seek  out Alaska  to  be the  home  of their  financial                                                                    
     assets due  to our environment which  promotes economic                                                                    
     security, strength,  and growth. House Bill  208, seeks                                                                    
     to continue the prosperity  of this environment through                                                                    
     further fostering  a conducive  place where  people can                                                                    
     invest  their assets  and know  that our  statutes will                                                                    
     insure their  integrity, and  ability to  benefit their                                                                    
     intended audience.                                                                                                         
                                                                                                                                
     We can look  at House Bill 208 as  a "flexibility" bill                                                                    
     which provides  for those looking  to perform  the best                                                                    
     estate  planning, whether  they are  residents or  non-                                                                    
     residents,  assurance that  their irrevocable  document                                                                    
     won't  hinder  its   beneficiaries  through  unintended                                                                    
     results  including; providing  financial resource  to a                                                                    
     dangerous  habit,  not  providing ability  to  pay  for                                                                    
     treatment  of   an  unforeseeable  disability,   or  by                                                                    
     providing  financial  resource  to  someone  who  would                                                                    
     rather  put it  towards a  suitable charity.  Decanting                                                                    
     may also  provide the ability to  keep documents viable                                                                    
     in response to changes in State or Federal tax laws.                                                                       
                                                                                                                                
     Since 1997, Alaska  has been a leader  in adopting laws                                                                    
     to  improve estate  and tax  planning options  for both                                                                    
     Alaskans  and   non-Alaskans.  House  Bill  208   is  a                                                                    
     continuation   of  this   leadership  as   it  provides                                                                    
     expansion and  clarification to our  existing statutes.                                                                    
     House  Bill 208  focusses on  expanding and  clarifying                                                                    
     four  key  areas  of  our  State  Statutes  surrounding                                                                    
     irrevocable trusts.                                                                                                        
                                                                                                                                
     The  four  areas are  Decanting  of  Trusts, Powers  of                                                                    
     Appointment,  traceability  of  Trust  Assets  for  Tax                                                                    
     Efficiency,  and  Clarification of  Trustees'  Specific                                                                    
     Powers. These four areas have  since, and in some cases                                                                    
     prior to,  1997 been forced  to be decided by  a Judge.                                                                    
     Providing  the  ability  for these  four  areas  to  be                                                                    
     clearly  outlined  by  the  original  settlor,  and  by                                                                    
     providing  beneficiaries   the  ability  to   adapt  to                                                                    
     unforeseen   events,   we   continue  to   provide   an                                                                    
     environment  where irrevocable  trusts, like  our State                                                                    
     and National  Constitution, may be amended  to provide,                                                                    
     or  not  provide,  in clearly  outlined,  yet  commonly                                                                    
     unforeseen, circumstances.                                                                                                 
                                                                                                                                
     Keeping all of  these things in mind, I  humbly ask for                                                                    
     your support  in keeping Alaska a  leader in innovation                                                                    
     in  the  trust  industry   as  the  financial  industry                                                                    
     continues  it's   perpetually  changing   mentality  by                                                                    
     passing House Bill 208.                                                                                                    
                                                                                                                                
2:21:23 PM                                                                                                                    
                                                                                                                                
SHAE  SEGART,  Staff,   Representative  DeLena  Goodwin  Johnson,                                                               
Alaska    State   Legislature,    paraphrased   the    PowerPoint                                                               
presentation,  titled  "House  Bill 208,"  as  follows  [original                                                               
punctuation provided]:                                                                                                          
                                                                                                                                
     Why is  House Bill  208 being introduced?  What problem                                                                    
     is being solved?                                                                                                           
                                                                                                                                
     House  bill 208  seeks to  expand, and  clarify current                                                                    
     State Statutes  surrounding one of our  most successful                                                                    
     industries. The  piece of legislation  in front  of you                                                                    
     is seeking to  continue the process started  in 1997 by                                                                    
     giving the  State of Alaska a  competitive advantage to                                                                    
     once again  be the best jurisdiction  for Alaskans, and                                                                    
     non-alaskans, to keep their trusts and estates in.                                                                         
                                                                                                                                
     Trust and Estate  planning is one of  these things that                                                                    
     commonly gets  overlooked in the search  for industries                                                                    
     that really strengthen  our economy. We saw  a value to                                                                    
     this   industry  in   1997   when   the  Alaska   State                                                                    
     Legislature passed  the Alaska Trust Act  which quickly                                                                    
     propelled our State to the  top of the nation's ranking                                                                    
     in  Estate and  Tax  Planning Industry.  It holds  vast                                                                    
     benefits to Alaskans as  well as financial institutions                                                                    
     in Alaska.                                                                                                                 
                                                                                                                                
     I would  like to point  you all  to a few  documents in                                                                    
     your bill  packet, the first  one, as we go  forward to                                                                    
     the four main  areas of this bill is a  matrix what you                                                                    
     decant, what happens when you  decant, and some kind of                                                                    
     hypotheticals in  moving forward.   The other one  is a                                                                    
     trust and  estate glossary, it has  some helpful terms.                                                                    
     As we move  through this law that has  a vernacular all                                                                    
     to itself, and  it is a very nuanced part  of our state                                                                    
     statute  books.   The  next one  would  be our  ranking                                                                    
     comparatively to  other states in the  trust and estate                                                                    
     planning industry.  We are  currently number 7, we used                                                                    
     to  be farther  up  on  this list  when  we passed  the                                                                    
     Alaska Trust  Act in 1997,  and have since sunk  in the                                                                    
     rankings.                                                                                                                  
                                                                                                                                
     2:23:30 PM                                                                                                               
                                                                                                                                
     Online  I   have  Matthew  Blattmachr  of   Peak  Trust                                                                    
     Company,  who  will  be  able   to  answer  any  really                                                                    
     professional questions  that get really  technical into                                                                    
     the trust profession and industry.   Going forth, there                                                                    
     are  four areas  where this  bill really  seeks to  add                                                                    
     expansion,  as   well  as   clarify  in   our  existing                                                                    
     statutes.                                                                                                                  
                                                                                                                                
     Since 1997, Alaska  has been a leader  in adopting laws                                                                    
     to  improve estate  and tax  planning options  for both                                                                    
     Alaskan  and  non-Alaskans.    House   Bill  208  is  a                                                                    
     continuation of  this leadership  as it  adds expansion                                                                    
     and clarification to our existing statutes.                                                                                
                                                                                                                                
     Decanting. Decanting, of course,  is the act of pouring                                                                    
     liquid from  one container to  another as  often occurs                                                                    
     with wine.   When one trust pays (or  pours) its assets                                                                    
     to  another   trust,  this  too   is  referred   to  as                                                                    
     decanting.    Decanting  is used  to  correct  drafting                                                                    
     errors, reduce  costs of trust  administration, enhance                                                                    
     tax effects  and many other  reasons. While  Alaska has                                                                    
     had decanting statutes for nearly  20 years, House Bill                                                                    
     208   would   provide    additional   flexibility   and                                                                    
     clarification  to   this  great   statutory  provision.                                                                    
     Decanting is commonly used by  Alaskans who are looking                                                                    
     to  update their  trust  documents. Additionally,  non-                                                                    
     residents  bring their  business to  Alaska because  of                                                                    
     this progressive statute.                                                                                                  
                                                                                                                                
2:25:02 PM                                                                                                                    
                                                                                                                                
     Powers of Appointment. One of  the most powerful estate                                                                    
     planning  tools   is  to  grant  someone,   such  as  a                                                                    
     beneficiary,  a "power  of  appointment," which  allows                                                                    
     that person  the right to  specify where  property will                                                                    
     pass  at certain  times, such  as when  the beneficiary                                                                    
     dies.                                                                                                                      
                                                                                                                                
     The proposal  would clarify  certain aspects  of Alaska                                                                    
     law relating to  these powers so they can  be used more                                                                    
     efficiently for tax and other reasons.                                                                                     
                                                                                                                                
     Tracing of  Trust's Assets for Tax  Efficiency.  Trusts                                                                    
     are  often  created by  more  than  one settlor.  Under                                                                    
     Internal  Revenue  Code  Section   671,  a  settlor  is                                                                    
     treated as  the owner  of the portion  of the  trust to                                                                    
     which the settlor contributed,  if the settlor reserves                                                                    
     certain powers over the trust property.                                                                                    
                                                                                                                                
     Under AS 13.36.169,  a trustee may divide  a trust into                                                                    
     one or  more separate  trusts if certain  tax elections                                                                    
     are  made. However,  the statute  does not  contemplate                                                                    
     dividing a trust into separate  portions when there are                                                                    
     multiple  settlors and  treating each  separate portion                                                                    
     as  being   contributed  to  solely  by   one  settlor.                                                                    
     Although  a trust  instrument might  grant this  power,                                                                    
     Alaska law does not.                                                                                                       
                                                                                                                                
     The  proposal  would allow  a  trustee  who has  traced                                                                    
     contributions  to  a trust,  as  well  as earnings  and                                                                    
     reinvestments  on  such  contributions, to  divide  the                                                                    
     trust  into  one more  separate  trusts  of which  each                                                                    
     settlor would  be treated  as the  sole settlor  of the                                                                    
     trust  as   to  the   portion  to   which  he   or  she                                                                    
     contributed. This  power would provide more  clarity as                                                                    
     to  the tax  treatment  of trusts  with  more than  one                                                                    
     settlor. No other  state appears to have  a similar law                                                                    
     in effect  at this  time. This  bill would  help Alaska                                                                    
     remain at the forefront of trust legislation.                                                                              
                                                                                                                                
2:27:04 PM                                                                                                                    
                                                                                                                                
     Clarification  of Certain  Trustee  Powers. Alaska  law                                                                    
     grants trustees  certain powers.   Among these  are the                                                                    
     right to  acquire insurance to  protect the  trust from                                                                    
     claims from third parties;  however, certain aspects of                                                                    
     the powers are not clear.                                                                                                  
                                                                                                                                
     The proposal  would clarify  Alaska law  to say  that a                                                                    
     trustee  can acquire  insurance  to  protect the  trust                                                                    
     assets  from claims  of third  parties and  the trustee                                                                    
     from third  party and beneficiary claims  and to charge                                                                    
     the premiums to the trust.                                                                                                 
                                                                                                                                
     These and  many other  Alaska laws the  Legislature has                                                                    
     enacted  have  benefitted  Alaskans,  has  resulted  in                                                                    
     millions  of  dollars   being  deposited  in  financial                                                                    
     institutions  in   the  state  which,  in   turn,  have                                                                    
     provided  funding for  Alaska businesses,  and provided                                                                    
     significant  work for  many Alaskans.  We  hope to  see                                                                    
     this success continue for years to come.                                                                                   
                                                                                                                                
2:28:58 PM                                                                                                                    
                                                                                                                                
MATHEW BLATTMACHR, Peak Trust Company,  offered that in 1997, the                                                               
legislature passed  the Alaska  Trust Act,  which put  Alaska not                                                               
only  as   the  first   state,  but   made  Alaska   the  premier                                                               
jurisdiction  for trust  and estate  planning.   These laws  were                                                               
powerful and created a desire  from other states to copy Alaska's                                                               
laws  in that  this would  be a  good industry  to have  in their                                                               
state, it's a clean industry,  it doesn't require any outlay from                                                               
the state in  order to bring it to a  state, or requires maintain                                                               
the  industry.   Therefore,  he said,  it  created a  competitive                                                               
environment with options  for clients and their  advisors, and in                                                               
the  event  Alaska  wants  to  maintain  its  standing,  it  must                                                               
frequently consider  additional bills  that not only  clarify but                                                               
add to existing statutes.                                                                                                       
                                                                                                                                
[MR. SIEGERT  read each  slide on the  PowerPoint word  for word,                                                               
please review each slide for his testimony.]                                                                                    
                                                                                                                                
2:30:41 PM                                                                                                                    
                                                                                                                                
MR.  SIEGERT  turned  to  slide  2,  "4  Areas  of  Concern"  and                                                               
paraphrased as follows:                                                                                                         
                                                                                                                                
     4  Areas of  Concern,  Decanting of  Trusts, Powers  of                                                                    
     Appointment,  Traceability  of  Trust  Assets  for  Tax                                                                    
     Efficiency,  and  Clarification of  Trustees'  Specific                                                                    
     Powers                                                                                                                     
                                                                                                                                
MR. SIEGERT turned to slide  3, "Helpful Definitions" and advised                                                               
these definitions are not located in the glossary.                                                                              
                                                                                                                                
MR. SIEGERT  turned to  slide 4,  "Decanting a  Trust," questions                                                               
posed  to Mr.  Blattmachr, and  paraphrased as  follows [original                                                               
punctuation provided]:                                                                                                          
                                                                                                                                
     Decanting a Trust.  Why  would someone want to decant a                                                                    
     trust?   We already have decanting  statute, isn't that                                                                    
     enough?!  What instances are  most common that call for                                                                    
     a trust to be decanted?                                                                                                    
                                                                                                                                
2:32:04 PM                                                                                                                    
                                                                                                                                
MR. BLATTMACHR  answered there are  a variety of  reasons someone                                                               
would  want  to decant,  and  advised  that the  matrix  provided                                                               
within the  materials assists in  setting up some examples  as to                                                               
how decanting can  help.  Decanting, he explained,  may include a                                                               
potential  scrivener's  error  in   the  original  document,  and                                                               
because the issue  was dealing with irrevocable  trusts and there                                                               
was no way to revoke them,  the technical way would be to decant.                                                               
An additional  reason for  decanting may be  changes in  tax law,                                                               
and  pointed to  the shift  in the  national presidential  regime                                                               
which may  bring about tax  law changes, thereby,  rendering some                                                               
planning documents  as inefficient  or ineffective.   The current                                                               
decanting statute is  almost 20 years old, he  described, and due                                                               
to advancements in  decanting and estate planning  law, this bill                                                               
would  add some  flexibility for  Alaskan practitioners  to match                                                               
what other  states currently  allow.  He  explained that  most of                                                               
these instances  are brought up  due to  a certain need  to amend                                                               
the  document  in some  manner,  and  is  done  so for  the  best                                                               
interests  of   the  beneficiaries,   whether  it   was  updating                                                               
provisions in  the document  or changing  dispositive provisions,                                                               
he explained.                                                                                                                   
                                                                                                                                
2:34:01 PM                                                                                                                    
                                                                                                                                
MR. SIEGERT  turned to slide 5,  "Sec. 29, 30" having  to do with                                                               
decanting,  and  paraphrased  as  follows  [original  punctuation                                                               
provided]:                                                                                                                      
                                                                                                                                
     Section 29  Adds a new section 13.36.380 (Distribution of                                                                  
     principal)                                                                                                                 
                                                                                                                                
          (a) Authorizes a court to authorize a trustee to                                                                      
          invade the principal of a trust if the court makes                                                                    
          certain findings                                                                                                      
                                                                                                                                
          (b) Limits the application of this section to an                                                                      
          irrevocable trust for which the trust instrument                                                                      
          provides for certain distributions                                                                                    
                                                                                                                                
     Section 30                                                                                                                 
                                                                                                                                
          (a) indicates that a second power, as defined in the                                                                  
          subsection, created by a first power may be validly                                                                   
          exercised to postpone the vesting of property without                                                                 
          regard to the creation of the first power                                                                             
                                                                                                                                
          (b) states that if a first power is exercised to                                                                      
          create a second power as defined in the subsection,                                                                   
          the second power is not valid unless all property                                                                     
          interests vest not later than 1000 years after the                                                                    
          creation of the first power.                                                                                          
                                                                                                                                
          (c) defines "first power" for the section.                                                                            
                                                                                                                                
MR.  SIEGERT   turned  to  slide  6,   "Powers  of  Appointment,"                                                               
questions  for   Mr.  Blattmachr,  and  paraphrased   as  follows                                                               
[original punctuation provided]:                                                                                                
                                                                                                                                
      Powers of Appointment. Do Powers of Appointment have                                                                      
     to do with more than just the distribution of assets?                                                                      
     Who holds the Power of Appointment in a trust?  Does                                                                       
     this bill change that to more people?  Is the Power of                                                                     
     Appointment a Fiduciary or Non-fiduciary power?  Why                                                                       
     do they matter?                                                                                                            
                                                                                                                                
MR. BLATTMACHR responded  that powers of appointment  can do more                                                               
than the  distribution of assets  because that  provision broadly                                                               
gives  the  beneficiary  the  ability to  appoint  assets  for  a                                                               
variety of  reasons, such as  winning the lottery  and appointing                                                               
the assets to a charity, putting  assets into a trust for a child                                                               
with substance abuse problems.   The powers of appointment can be                                                               
used for  tax planning reasons,  for example, to pull  the assets                                                               
out of  someone's estate  and into their  estate.   Typically, he                                                               
advised, the  powers of appointment  is given to  the beneficiary                                                               
of  the   document,  although  sometimes  they   can  be  further                                                               
assigned, and  the bill does not  change who is appointed  or the                                                               
number of people.   He offered that powers of  appointment can be                                                               
held in  a fiduciary  or non-fiduciary  power depending  upon the                                                               
document and the  power itself, and they matter  as they increase                                                               
flexibility within trust documents.                                                                                             
                                                                                                                                
2:37:04 PM                                                                                                                    
                                                                                                                                
CHAIR CLAMAN  referred to  slide 5,  Section 30,  subsection (b),                                                               
which read as follows:                                                                                                          
                                                                                                                                
          (b) states that if a first power is exercised to                                                                      
          create a second power as defined in the subsection,                                                                   
          the second power is not valid unless all property                                                                     
          interests vest not later than 1000 years after the                                                                    
          creation of the first power.                                                                                          
                                                                                                                                
CHAIR CLAMAN noted there is a  rule of perpetuity making it 1,000                                                               
years  after the  creation  of  the first  power,  and asked  the                                                               
justification for 1,000 years.                                                                                                  
                                                                                                                                
MR. SIEGERT  answered that under  current statute  [AS 34.27.051]                                                               
there  is  a statutorily  protected  section  of 1,000  years  of                                                               
perpetuity, and this  does not change the common 21  year rule of                                                               
perpetuity.   He  advised  there are  many  states with  expanded                                                               
rules against perpetuities and Alaska  is one state that contains                                                               
1,000 years.                                                                                                                    
                                                                                                                                
CHAIR  CLAMAN  commented  that   that  is  existing  statute  and                                                               
surmised that  nothing was  being changed  today with  respect to                                                               
trusts.                                                                                                                         
                                                                                                                                
MR. SIEGERT agreed.                                                                                                             
                                                                                                                                
2:39:15 PM                                                                                                                    
                                                                                                                                
MR.  SIEGERT  turned to  slides  7-12,  "Sections 1,  5-7,  10-22                                                               
(Powers  of  Appointment),  and read  each  slide  word-for-word.                                                               
[Please see PowerPoint "House Bill 208."]                                                                                       
                                                                                                                                
2:45:15 PM                                                                                                                    
                                                                                                                                
MR.  SIEGERT  turned  to  slide  13,  "Traceability  of  Assets,"                                                               
questions  for  Mr.  Blattmachr to  answer,  and  paraphrased  as                                                               
follows [original punctuation provided]:                                                                                        
                                                                                                                                
       Traceability of Assets.  Isn't this just a way of                                                                        
      avoiding taxes?  Why don't we already have a statute                                                                      
     protecting this already; if it is such a big deal?                                                                         
                                                                                                                                
MR. BLATTMACHR responded that traceability  of assets has nothing                                                               
to do  with avoiding taxes,  in that it provides  practitioners a                                                               
provision  with  which  to  rely   when  unwinding  a  trust  and                                                               
separating  assets.   For example,  practitioners  can rely  upon                                                               
this provision when  "planning the event" and  they have multiple                                                               
grantors of a  single trust, for whatever reason,  and would like                                                               
to separate  the assets of  the trust.   This provision is  not a                                                               
big deal, but it adds clarity to Alaska law, he commented.                                                                      
                                                                                                                                
2:46:35 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE KOPP surmised  that this is technical  area of law                                                               
and some of these terms should  be discussed for clarity, such as                                                               
the definitions of fiduciary versus non-fiduciary.                                                                              
                                                                                                                                
MR.  BLATTMACHR  responded  that fiduciary  versus  non-fiduciary                                                               
comes down  to who holds  that power.  In  the event a  person is                                                               
already acting in  a fiduciary capacity, such as  a trustee, they                                                               
typically hold  a fiduciary power.   In the event they  hold that                                                               
power as  a beneficiary and  are not  in a fiduciary  capacity to                                                               
begin with,  typically it is  a non-fiduciary power.   Generally,                                                               
he explained, the entity or  person that holds the power dictates                                                               
whether it is fiduciary or non-fiduciary.                                                                                       
                                                                                                                                
2:48:21 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  KOPP referred  to non-fiduciary,  and asked  that                                                               
when a person is the holder  of a non-fiduciary power, that means                                                               
the person  is not  a beneficiary,  the person  is holding  it in                                                               
trust for another person.                                                                                                       
                                                                                                                                
MR. BLATTMACHR said, "No, not  necessarily."  For example, in the                                                               
event Peak  Trust Company held  a fiduciary power  of appointment                                                               
over trust  assets, it would  hold that in a  fiduciary capacity,                                                               
most likely.   Wherein, he said, the Peak Trust  Company would be                                                               
held  to the  same standard  with that  power as  with any  other                                                               
action or  inaction.  He  related that for a  beneficiary holding                                                               
that power, they typically do not  have to hold it in a fiduciary                                                               
capacity.  There may be standards  to who they can appoint it to,                                                               
such as a  defined class of beneficiaries, and there  may not be,                                                               
that goes into  different types of powers.  He  advised that they                                                               
do  not have  a fiduciary  duty when  exercising that  power, but                                                               
again, if  they are a  beneficiary, they would be  appointing the                                                               
assets for their benefit.                                                                                                       
                                                                                                                                
2:49:46 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE KOPP noted that he  would research the issue a bit                                                               
on his own, and asked that "invasion of trust" be explained.                                                                    
                                                                                                                                
MR. BLATTMACHR explained  that invasion is typically  a term that                                                               
defines  the appointment  of  assets from  one  trust to  another                                                               
trust  as far  as  decanting.   Typically,  he  said,  it is  not                                                               
separated between  whether that  was income  or principle,  it is                                                               
that the current trust was  being invaded, pulling assets out and                                                               
putting them into a new trust.                                                                                                  
                                                                                                                                
2:50:53 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  KOPP surmised  that  it has  nothing  to do  with                                                               
getting  into  earnings  of  a   trust  versus  getting  into  an                                                               
appropriation or a  withdrawal of the principle of  the trust, it                                                               
doesn't break it  down in that manner.  He  further surmised that                                                               
an invasion means taking anything out of a trust.                                                                               
                                                                                                                                
MR.  BLATTMACHR  responded  in   the  sense  of  decanting,  yes.                                                               
Typically, the entirety  of the original trust is put  into a new                                                               
trust.  Although, he commented,  that might change when decanting                                                               
one trust and separating it out  into three trusts, one trust for                                                               
the benefit of three different  beneficiaries and take a pro rata                                                               
share.   He  agreed that  it  is typically,  not necessarily  the                                                               
definition of principle versus income.                                                                                          
                                                                                                                                
2:51:58 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE FANSLER  asked that  the tax  structure, currently                                                               
in  place in  Alaska, be  explained, whether  they are  all taxed                                                               
equally, and whether there are different structures.                                                                            
                                                                                                                                
MR. SIEGERT deferred to attorney Richard Hompesch.                                                                              
                                                                                                                                
2:53:43 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE FANSLER  noted that different types  of trusts are                                                               
available,  and  requested  that   tax  liability  structures  be                                                               
explained  within the  different trusts  set up  in the  State of                                                               
Alaska.                                                                                                                         
                                                                                                                                
2:53:54 PM                                                                                                                    
                                                                                                                                
RICHARD  HOMPESCH, Attorney,  Hompesch Evans  & Averett,  advised                                                               
that Alaska  does not tax the  income of trusts or  estates under                                                               
current law,  trusts and  estates are  subject to  federal income                                                               
and transfer taxes.   He advised that he was  testifying today on                                                               
his own behalf, and not on behalf of any party.                                                                                 
                                                                                                                                
2:54:31 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE FANSLER specifically asked  whether all trusts tax                                                               
in the  exact same manner, whether  it be a federal  or state tax                                                               
structure.                                                                                                                      
                                                                                                                                
MR. HOMPESCH  replied that  the taxation  of trust  income varies                                                               
from  state-to-state,   and  the  federal  taxation   income  and                                                               
transfer  tax  of  trusts  is  generally the  same.    There  are                                                               
exceptions, some trusts are exempt  from federal income taxation,                                                               
known  as  Charitable  Trusts,  but  most  of  the  trusts  being                                                               
discussed  today  may be  decanted  into  another trust  and  are                                                               
subject to federal income taxes.                                                                                                
                                                                                                                                
REPRESENTATIVE  FANSLER referred  to  allowing  decanting due  to                                                               
innovations in  trusts or changes  in the tax code,  for example,                                                               
and asked  whether it would  be possible  for a person  to decant                                                               
their current  trust into a  new trust that would  suddenly occur                                                               
into a tax liability.                                                                                                           
                                                                                                                                
MR. HOMPESCH answered "Not to my knowledge, no."                                                                                
                                                                                                                                
2:56:23 PM                                                                                                                    
                                                                                                                                
MR.  SIEGERT  turned to  slide  14,  "23  - Dividing  trust  into                                                               
separate portions  for income tax  purposes," and  paraphrased as                                                               
follows [original punctuation provided]:                                                                                        
                                                                                                                                
     This section adds a new subsection to read:                                                                                
                                                                                                                                
     Unless  a governing  instrument specifically  refers to                                                                    
     this  section and  provides otherwise,  if  a trust  is                                                                    
     created  by more  than one  settlor, and  if a  trustee                                                                    
     keeps  records  tracing  contributions, a  trustee  may                                                                    
     divide the trust  into one or more  separate trusts for                                                                    
     which a specific  settlor shall be treated  as the sole                                                                    
     settlor of the  separate portion of the  trust to which                                                                    
     the settlor  contributed. A  trustee may  exercise this                                                                    
     power  at any  time,  whether before,  or,  or after  a                                                                    
     settlor's  death. A  trustee  may  exercise this  power                                                                    
     whether or not the trust  was initially governed by the                                                                    
     law of this state or the  situs of a trust was moved to                                                                    
     this state.                                                                                                                
                                                                                                                                
2:57:36 PM                                                                                                                    
                                                                                                                                
MR.  SIEGART  turned  to slide  15,  "Clarification  of  Specific                                                               
Powers  of  a  Trustee,"  having  to  do  with  clarification  of                                                               
specific  powers  of  a  trustee,   and  paraphrased  as  follows                                                               
[original punctuation provided]:                                                                                                
                                                                                                                                
     What are Specific Powers of  a Trustee?  Can't specific                                                                    
     powers be given by the trust?                                                                                              
                                                                                                                                
MR.  BLATTMACHR  advised  that under  Alaska  law,  the  specific                                                               
powers of  a trustee  are quite broad  and include  anything that                                                               
might  be  reasonably  expected  for  a  trustee  to  perform  to                                                               
administer a trust.   He further advised there  are some specific                                                               
definitions under Alaska law that  can be further clarified under                                                               
the  trust documents.    In addition,  he  explained, Alaska  law                                                               
allows for different  trustees to hold different  powers, and for                                                               
certain powers to  be taken away from trustees.   Specific powers                                                               
can  be given  by  the trust  and give  more  flexibility to  the                                                               
trustee  than what  Alaska law  allows, or  it can  also restrict                                                               
abilities of trustees in the document, he explained.                                                                            
                                                                                                                                
2:58:57 PM                                                                                                                    
                                                                                                                                
MR. SIEGERT turned  to slide 16, "Section 2,"  and paraphrased as                                                               
follows [original punctuation provided]:                                                                                        
                                                                                                                                
     Specific Powers of Trustees. Except as otherwise                                                                         
     provided by this chapter, in addition to the powers                                                                        
     conferred by the terms of the trust, a trustee may                                                                         
     perform all actions necessary to accomplish the proper                                                                     
     management, investment, and distribution of the trust                                                                      
     property, including the power?                                                                                             
                                                                                                                                
        This is followed by the 29 powers that are                                                                              
        statutorily protected.                                                                                                  
                                                                                                                                
        (17) to insure the property of the trust against                                                                        
     damage or loss and to insure the trustee against                                                                           
     liability with respect to third persons or                                                                             
     beneficiaries of the trust;                                                                                            
                                                                                                                                
                                                                                                                                
2:59:29 PM                                                                                                                    
                                                                                                                                
MR. SIEGERT  turned to slide 17,  "Section 3," having to  do with                                                               
the   clarification  of   specific   powers   of  trustees,   and                                                               
paraphrased as follows [original punctuation provided]:                                                                         
                                                                                                                                
        (b) A trustee may pay as a charge against trust                                                                         
        property the cost incurred to perform an action                                                                         
     authorized under (a) of this section                                                                                       
                                                                                                                                
2:59:50 PM                                                                                                                    
                                                                                                                                
MR. SIEGERT  turned to slide 18,  "Sections 25-28 (Definitions),"                                                               
changes   in  definition   to  accommodate   new  sections,   and                                                               
paraphrased as follows [original punctuation provided]:                                                                         
                                                                                                                                
     Sec. 25 - Changes definition to accommodate new subsections                                                                
     of Definition                                                                                                              
                                                                                                                                
     Sec. 26 - (b)(2) updates to include new legal term "power"                                                                 
     instead of authority. Deletes clarification of "trustee" to                                                                
     agree with powers given in the proposal.                                                                                   
                                                                                                                                
     Sec. 27 - includes a revocable trust in definition of                                                                      
     "invaded trust"                                                                                                            
                                                                                                                                
     Sec. 28 - Adds definition of beneficiary                                                                                   
                                                                                                                                
3:00:43 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE KOPP  offered appreciation for the  technical bill                                                               
and  acknowledged the  capacity of  Alaska to  be a  vanguard for                                                               
setting  up  trusts  in  estates  because  it  is  a  significant                                                               
industry in  and of  itself.  He  offered his  understanding that                                                               
clean-up keeps  the state  in a leadership  role, and  asked when                                                               
the committee would hear from the Department of Law.                                                                            
                                                                                                                                
CHAIR CLAMAN  advised the  bill would not  move today,  and asked                                                               
that  the Department  of Law  be available  during the  next bill                                                               
hearing.                                                                                                                        
                                                                                                                                
CHAIR CLAMAN opened public testimony on HB 208.                                                                                 
                                                                                                                                
3:02:36 PM                                                                                                                    
                                                                                                                                
BETH  CHAPMAN,  Attorney,  Faulkner  Banfield,  advised  she  has                                                               
practiced in estate planning and  the special needs planning area                                                               
for the  past 29  years, and  supports HB 208.   She  pointed out                                                               
that not only  will the legislation continue  to improve Alaska's                                                               
laws in  bringing trust business to  the state, but it  will also                                                               
help  Alaskans.   The decanting  provisions,  in particular,  are                                                               
used quite  frequently to help  Alaskan families'  correct trusts                                                               
and protect beneficiaries.  These  amendments continue to provide                                                               
flexibility  and  more  opportunities   to  help  their,  mostly,                                                               
Alaskan clients, and  respond to changed circumstances  in a cost                                                               
efficient manner so  that the court system was  not involved, she                                                               
said.   Oftentimes, these  trusts are  written when  children are                                                               
young and  may terminate  at a  certain age,  and that  child may                                                               
later   develop  disabilities   or   sometimes  substance   abuse                                                               
problems.   These laws allow  the correction of those  trusts, to                                                               
make sure the  funds stay in trust for the  individual, provide a                                                               
safety net, and give their  clients certainty that their families                                                               
will be cared for in the future.                                                                                                
                                                                                                                                
3:04:07 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE KREISS-TOMKINS  asked Ms. Chapman to  speak to the                                                               
nature of the trust industry  in Alaska, the industries attracted                                                               
to the state  with the most appealing  statutory environment, the                                                               
attractiveness of  Alaska to the  industry, and the scope  of the                                                               
industry relative to other states.                                                                                              
                                                                                                                                
MS. CHAPMAN  responded that  the industry  has been  comprised of                                                               
various components since 1997, the  financial industry, the trust                                                               
companies, and the financial institutions  that receive the trust                                                               
funds required  to be  deposited in  Alaska for  non-residents to                                                               
use the  trust laws.   Since 1997,  Alaska had been  the premiere                                                               
jurisdiction  and   it  was  the  first   jurisdiction  to  start                                                               
modernizing trust laws,  other states started to  compete and the                                                               
states  copied  whatever  was  done  in  Alaska,  in  particular,                                                               
Delaware, South  Dakota, and Nevada.   Over the years,  she said,                                                               
"we  have tried  to  limit" how  many times  they  go before  the                                                               
legislature  to seek  modernization of  these laws,  and [due  to                                                               
those  efforts]  other  states leaped  over  [Alaska].    Several                                                               
rankings  are  provided,  one  was   included  in  the  materials                                                               
regarding decanting,  and Alaska previously  was at the  top, but                                                               
it is no longer  at the top.  She said, "We  are trying to strike                                                               
a balance" that will continue  to attract those trusts to Alaska,                                                               
and  also continue  to ensure  that Alaskans  want to  keep their                                                               
funds  in  Alaska  because, she  explained,  similar  to  anyone,                                                               
Alaskans  will  look  for  the best  laws  for  their  particular                                                               
financial needs.                                                                                                                
                                                                                                                                
3:06:21 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  KREISS-TOMKINS  described   that  the  notion  of                                                               
modernizing laws was  interesting and it suggested  that the laws                                                               
are  neutral  and  merely  reacting  to  the  changing  financial                                                               
industry or evolving technologies.   In the event his description                                                               
was correct, he  asked whether the trust  industry had considered                                                               
trying to  get around  the legislative  process if  the revisions                                                               
were  merely technical,  and  whether  it considered  regulations                                                               
with a board.  He then asked, if  that was not the case, what the                                                               
points of  pushback were, and why  had not all 50  states adopted                                                               
laws appropriately modern.                                                                                                      
                                                                                                                                
MS. CHAPMAN  reminded Representative  Kreiss-Tomkins that  she is                                                               
an attorney  in private  practice, and  while she  drafts trusts,                                                               
she is not part of the  trust industry and was appearing today as                                                               
a private  practitioner.  The  trust industry, whether it  be the                                                               
Peak  Trust  Company or  other  trust  companies in  Alaska,  are                                                               
regulated by  regulation and one  state department.   She related                                                               
that when she first started practicing,  the state did not have a                                                               
trust code and when  she had a question she had  to look to other                                                               
states to find the answer.  She  said, "What we are trying to do"                                                               
is create a statutory  framework offering practitioners, clients,                                                               
and anyone using those laws, some  certainty as to what they are,                                                               
with  some standards.   Other  states are  starting to  also move                                                               
forward with  new changes, she  opined, as 22 states  adopted the                                                               
decanting  statutes, and  Alaska was  the second  state in  1997.                                                               
Also, more  and more states are  moving toward the repeal  of the                                                               
rule against  perpetuity and states  are looking to make  it more                                                               
assessable  for people  to use  trusts  as part  of their  estate                                                               
plan, she explained.                                                                                                            
                                                                                                                                
3:09:44 PM                                                                                                                    
                                                                                                                                
JONATHAN BATTMACHR, Attorney,  advised he is a member  of the New                                                               
York, California,  and Alaska bar associations,  and is currently                                                               
retired.   He described  HB 208  as "excellent"  in that  it will                                                               
help Alaska  maintain its position  as one of the  premiere trust                                                               
jurisdictions in the country.                                                                                                   
                                                                                                                                
CHAIR  CLAMAN,  after  ascertaining  no one  wished  to  testify,                                                               
closed public testimony on HB 208.                                                                                              
                                                                                                                                
[HB 208 was held over.]                                                                                                         
                                                                                                                                

Document Name Date/Time Subjects
HB208 ver A 4.10.17.PDF HJUD 4/10/2017 1:00:00 PM
HJUD 4/12/2017 1:00:00 PM
HJUD 4/14/2017 1:00:00 PM
HB 208
HB208 Sponsor Statement 4.10.17.pdf HJUD 4/10/2017 1:00:00 PM
HJUD 4/12/2017 1:00:00 PM
HJUD 4/14/2017 1:00:00 PM
HB 208
HB208 Sectional Analysis ver A 4.10.17.pdf HJUD 4/10/2017 1:00:00 PM
HJUD 4/12/2017 1:00:00 PM
HJUD 4/14/2017 1:00:00 PM
HB 208
HB208 PowerPoint Sectional 4.10.17.pptx HJUD 4/10/2017 1:00:00 PM
HJUD 4/12/2017 1:00:00 PM
HJUD 4/14/2017 1:00:00 PM
HB 208
HB208 Supporting Document-Decanting Matrix 4.10.17.pdf HJUD 4/10/2017 1:00:00 PM
HJUD 4/12/2017 1:00:00 PM
HJUD 4/14/2017 1:00:00 PM
HB 208
HB208 Supporting Document-Decanting Rankings 4.10.17.pdf HJUD 4/10/2017 1:00:00 PM
HJUD 4/12/2017 1:00:00 PM
HJUD 4/14/2017 1:00:00 PM
HB 208
HB208 Supporting Document-Trust Estate Glossary 4.10.17.pdf HJUD 4/10/2017 1:00:00 PM
HJUD 4/12/2017 1:00:00 PM
HJUD 4/14/2017 1:00:00 PM
HB 208
HB208 Supporting Document-Letter Peak Trust Company 4.10.17.pdf HJUD 4/10/2017 1:00:00 PM
HJUD 4/12/2017 1:00:00 PM
HJUD 4/14/2017 1:00:00 PM
HB 208
HB208 Supporting Document-Letter Manley & Brautigam 4.10.17.pdf HJUD 4/10/2017 1:00:00 PM
HJUD 4/12/2017 1:00:00 PM
HJUD 4/14/2017 1:00:00 PM
HB 208
HB208 Supporting Document-Letter ABA 4.10.17.pdf HJUD 4/10/2017 1:00:00 PM
HJUD 4/12/2017 1:00:00 PM
HJUD 4/14/2017 1:00:00 PM
HB 208
HB208 Supporting Document-Letter Northern Law Group 4.10.17.pdf HJUD 4/10/2017 1:00:00 PM
HJUD 4/12/2017 1:00:00 PM
HJUD 4/14/2017 1:00:00 PM
HB 208
HB208 Fiscal Note LAW-CIV 4.7.17.pdf HJUD 4/10/2017 1:00:00 PM
HJUD 4/12/2017 1:00:00 PM
HJUD 4/14/2017 1:00:00 PM
HB 208
HB175 ver A 4.12.17.pdf HJUD 4/12/2017 1:00:00 PM
HB 175
HB175 Sponsor Statement 4.12.17.pdf HJUD 4/12/2017 1:00:00 PM
HB 175
HB175 Sectional Analysis ver A 4.12.17.pdf HJUD 4/12/2017 1:00:00 PM
HB 175
HB175 Additional Document-Legal Memo 4.12.17.pdf HJUD 4/12/2017 1:00:00 PM
HB 175
HB175 Supporting Document-Supplemental Information 4.12.17.pdf HJUD 4/12/2017 1:00:00 PM
HB 175
HB 175 Supporting Document-Letters of Support 4.11.17.pdf HJUD 4/12/2017 1:00:00 PM
HB 175
HB 175 Opposing Document-Letters of Opposition 4.11.17.pdf HJUD 4/12/2017 1:00:00 PM
HB 175
HB175 Additional Document-Letter on Congressional Consent 4.12.17.pdf HJUD 4/12/2017 1:00:00 PM
HB 175
HB175 Fiscal Note OOG-DOE 4.12.17.pdf HJUD 4/12/2017 1:00:00 PM
HB 175
HB170 ver J 4.7.17.pdf HJUD 4/7/2017 1:00:00 PM
HJUD 4/11/2017 5:30:00 PM
HJUD 4/12/2017 1:00:00 PM
HB 170
HB170 Sponsor Statement 4.7.17.pdf HJUD 4/7/2017 1:00:00 PM
HJUD 4/11/2017 5:30:00 PM
HJUD 4/12/2017 1:00:00 PM
HB 170
HB170 Sectional Analysis 4.7.17.pdf HJUD 4/7/2017 1:00:00 PM
HJUD 4/11/2017 5:30:00 PM
HJUD 4/12/2017 1:00:00 PM
HB 170
HB170 Repealers List 4.7.17.pdf HJUD 4/7/2017 1:00:00 PM
HJUD 4/11/2017 5:30:00 PM
HJUD 4/12/2017 1:00:00 PM
HB 170
HB170 DCCED Whitepaper 4.7.17.pdf HJUD 4/7/2017 1:00:00 PM
HJUD 4/11/2017 5:30:00 PM
HJUD 4/12/2017 1:00:00 PM
HB 170
HB170 Supporting Document-Letter ANCSA Regional Association 4.7.17.pdf HJUD 4/7/2017 1:00:00 PM
HJUD 4/11/2017 5:30:00 PM
HJUD 4/12/2017 1:00:00 PM
HB 170
HB170 Supporting Document-Letter NASAA 4.7.17.pdf HJUD 4/7/2017 1:00:00 PM
HJUD 4/11/2017 5:30:00 PM
HJUD 4/12/2017 1:00:00 PM
HB 170
HB170 HJUD Slide Presentation 4.7.17.pdf HJUD 4/7/2017 1:00:00 PM
HJUD 4/11/2017 5:30:00 PM
HJUD 4/12/2017 1:00:00 PM
HB 170
HB170 Additional Document-Enforcement Comparison Chart 4.7.17.pdf HJUD 4/7/2017 1:00:00 PM
HJUD 4/11/2017 5:30:00 PM
HJUD 4/12/2017 1:00:00 PM
HB 170
HB170 Additional Document-Sponsor's Reply to House Judiciary Committee Questions 4.11.17.pdf HJUD 4/12/2017 1:00:00 PM
HB 170
HB170 Additional Document-Violations in Statute 4.12.17.pdf HJUD 4/12/2017 1:00:00 PM
HB 170
HB170 Amendments #1-3 4.12.17.pdf HJUD 4/12/2017 1:00:00 PM
HB 170
HB170 Amendments #1-3 HJUD Final Votes 4.12.17.pdf HJUD 4/12/2017 1:00:00 PM
HB 170
HB170 Fiscal Note DCCED-DBS 4.7.17.pdf HJUD 4/7/2017 1:00:00 PM
HJUD 4/11/2017 5:30:00 PM
HJUD 4/12/2017 1:00:00 PM
HB 170
HB170 Fiscal Note DHSS-SDSA 4.7.17.pdf HJUD 4/7/2017 1:00:00 PM
HJUD 4/11/2017 5:30:00 PM
HJUD 4/12/2017 1:00:00 PM
HB 170