Legislature(1997 - 1998)
03/18/1998 03:24 PM House L&C
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 417 - UNCLAIMED INTESTATE PROPERTY Number 0102 CHAIRMAN ROKEBERG announced the committee's first order of business was HB 417, "An Act relating to the unclaimed property of persons dying intestate." Number 0115 REPRESENTATIVE GARY DAVIS presented HB 417. The sponsor statement read: Under current law, when there are assets from an estate for which there was no will and there are no known heirs, the state has certain responsibilities and procedures for determining whether there are heirs to the estate. If no living heirs are located, the assets pass to the state. House Bill 417 provides that certain community organizations in the municipality in which the decedent last lived may apply for these assets if the state has had possession of them for a period of five years and no one has come forward to claim them. If no community organization applies for the assets, they become the property of the state. If only one organization applies, the Department of Revenue will give the estate to that organization. If there is more than one organization that qualifies and applies, they may agree to share the property. If the organizations do not agree to share, then the appropriate local government - either the city or borough - will identify the applicant that provides its services the most broadly throughout the municipality. In order to qualify, a community organization must be located in the city in which the decedent lived, or in the borough if the decedent didn't live in a city. It must also be a nonprofit corporation exempt from federal taxation, be operated exclusively to provide services promoting the well being of the residents of the municipality, and have been in existence for at least three years. Under HB 417, the state's only additional responsibility will be to publish a notice in the municipality in which the decedent lived stating that the decedent died intestate and that no heirs have been identified. It is the responsibility of the community organization to investigate whether it may be qualified to receive the estate and to apply for it. Generally, when an individual dies intestate with no heirs, the size of the estate is not large from the state's perspective. However, the funds from the estate could be used by a community organization to greatly benefit the community at large. House Bill 417 provides a mechanism by which these organizations can apply for an estate, without causing the state undue expense or administrative time. REPRESENTATIVE DAVIS stated HB 417 is apparently a new idea, noting they haven't found this in any other states. The property of value belonging to someone who dies without a will currently reverts by statute to the state and the state has procedures to dispose of the property. This bill would allow qualifying nonprofit organizations priority to accept the property of value of someone dying without a will in a municipality. He noted the legislation gave time frames to allow rightful heirs to come forward. The bill gives the qualifying process for organizations and establishes a "pecking order" determining which nonprofit would be the possible recipient. If there are two nonprofits, the bill indicates those two nonprofits could agree to split any of the assets. If there were more than two, the controlling municipality would establish the structure determining which nonprofit would receive the property. Representative Davis said that was the bill, noting the Department of Revenue (DOR) was present. Referring to Alaska's Uniform Unclaimed Property Act, Representative Davis stated, "It's title report of abandoned personal property and our legislation specifies that intestate property would follow - follow the procedures in statute as to the process that the state would need to go through to make sure that there are no heirs, and ... I believe it also determines the value of the property." Number 0399 REPRESENTATIVE JOHN COWDERY said the bill did not have a definition of nonprofit except "'community organization' means a person who is exempt from federal taxation ...." [page 2, beginning with line 29, "(3) "community organization" means a person who (A) is exempt from federal taxation under 26 U.S.C. 501(c)(3) (Internal Revenue Code); ..."] He asked about churches. REPRESENTATIVE JOE RYAN commented churches were 501(c)(3) organizations REPRESENTATIVE COWDERY said he knew that, but asked if that was the sponsor's intent. Number 0430 REPRESENTATIVE DAVIS said he would prefer to exclude churches if it was constitutionally provided, noting he had not really thought of it. REPRESENTATIVE COWDERY indicated he did not think the definition was clear enough and said if it is the sponsor's intent to exclude churches, they should say that in the bill. Number 0495 REPRESENTATIVE DAVIS referred to page 2; lines 29, 30 and 31, of the bill commenting he thinks if churches fall under that definition then they would be included. He said he didn't feel very strongly one way or another. Number 0523 REPRESENTATIVE TOM BRICE asked about property outside of a municipality. REPRESENTATIVE DAVIS indicated his intent was to have it specifically apply to property within organized municipalities, and other property would follow the current procedures. REPRESENTATIVE BRICE confirmed the property outside of municipalities would go back to the state. Number 0549 REPRESENTATIVE RYAN thanked Representative Davis for bringing this forward, noting he was not a fan of government ending up with the fruits of someone's life labors, no matter how small. He commented it looked like a pretty good bill to him and perhaps could have been made more inclusive. Number 0586 REPRESENTATIVE BILL HUDSON asked if very valuable property like land, real estate, things of that nature, of someone dying intestate would be included in this. He asked if there was a dollar value limitation. Number 0626 REPRESENTATIVE DAVIS replied there was no dollar value limitation at this time, and that had occurred to him today as he was reviewing the legislation. He had wondered if they needed to consider the situation of property valued in a couple of million dollars, for example. He noted he thought it would be highly unlikely that someone with that amount of assets would not have a will, but it could happen, and it would certainly be an opportunity for a nonprofit to recover some value. Number 0669 REPRESENTATIVE HUDSON confirmed the three-year nonprofit requirement was to halt opportunists. He asked if Representative Davis thought that was long enough. REPRESENTATIVE DAVIS answered in the affirmative, noting that number was negotiable. He added he wanted to give as much discretion as possible on details, although perhaps not limits, to the municipalities to create an ordinance addressing this. Number 0743 REPRESENTATIVE COWDERY asked how heirs who might be in the chain of entitlement by law would be addressed. REPRESENTATIVE DAVIS replied he wasn't sure and had not read the existing statutes, but indicated he would think there are procedures currently followed by the state for intestate property ensuring the legally necessary efforts to locate heirs have been made, including advertisements to the effect that someone has passed away and anyone who claims any of that person's estate has a certain time to come forward. Representative Davis indicated the DOR was here to testify and he believed a representative of the department could answer. REPRESENTATIVE COWDERY noted that was a concern of his. He commented he also believes it is possible in Alaska to receive a divorce without the knowledge and consent of one party if that party cannot be located. Number 0878 REPRESENTATIVE JERRY SANDERS asked what was the current ultimate disposition of this property. REPRESENTATIVE DAVIS replied it was his understanding, noting the department could correct him, that the property goes to the ownership of the state. If it is real property the state puts it up for sale, option, or whatever process is followed. He thinks other things like residences or facilities are treated the same way; there is a procedure for disposal and the state collects the money. REPRESENTATIVE SANDERS confirmed that the money went into the general fund. REPRESENTATIVE DAVIS said that was his understanding. REPRESENTATIVE SANDERS asked what Representative Davis's motivation was for the bill, commenting he's sure there probably aren't a lot of decedents claiming that the state is receiving their money. Number 0933 REPRESENTATIVE DAVIS said a former insurance agent of his, involved in some health care nonprofit organization Representative Davis was not familiar with, introduced the idea to him. Representative Davis indicated he thought it sounded like a good idea, referring to Representative Ryan's previous comments about the government receiving someone's life assets. He indicated the legislature provides some funding to nonprofit corporations which provide some social benefit to municipalities, districts, and to the state as well. He stated, "So any opportunity to supplant additional dollars other than general fund dollars, which of course this would - would in essence be general fund dollars in - in itself." Representative Davis indicated that was his train of thought when the idea was presented to him. Number 1019 REPRESENTATIVE SANDERS noted he could see a lot of problems but stated he was not taking a stand on the bill at this point and wanted to hear the testimony. He stated, "By putting it through the state and us voting to give it to nonprofits, it removes it from the individual. Of course ... the individual's not in a position to complain about it, but still ... I can see where, like you say, people have ... spent all their life building something up, and perhaps they hate animals, and they certainly don't want their money going to the SPCA [Society for the Prevention of Cruelty to Animals] or perhaps they are atheists and over their dead body their money's gonna go to a church, which is exactly what's gonna happen here." Representative Sanders commented he was bringing up these questions, but not saying "no" to the bill. Number 1070 REPRESENTATIVE DAVIS stated those certainly are questions individuals might have, and there might be the same concerns under the current situation over the state's final distribution of an atheist's assets, for example. Number 1089 CHAIRMAN ROKEBERG asked if Representative Sanders was suggesting that if the chairman were to die intestate, part of his estate could go to the Sierra Club legal defense fund. REPRESENTATIVE SANDERS replied that was the way it sounded to him. REPRESENTATIVE RYAN commented it was a good reason to make a will. CHAIRMAN ROKEBERG suggested the mandated will bill. Number 1110 REPRESENTATIVE DAVIS said he was concerned about that several years before he even thought of being in the legislature. When he did get into the legislature he looked at some how or some way to mandate wills, so that they could eliminate or drastically reduce the amount of probate activity occurring in Alaska. Representative Davis noted he has not found that mechanism yet. REPRESENTATIVE SANDERS commented on that basis, he liked Representative Davis's bill. Number 1145 REPRESENTATIVE RYAN commented Alaska was about the only state which gave attorneys actual fees, not a percentage of the estate, for probate. He said the attorney had to present a bill with particulars, noting this was something Alaska has going for it that other jurisdictions did not. Number 1162 CHAIRMAN ROKEBERG stated, "You may take a question off the real estate examination about this (indisc.), but it still is there." He asked if any of these things were being repealed, or if "in the event of" was just being substituted if there was no taker. REPRESENTATIVE DAVIS indicated they were substituting. CHAIRMAN ROKEBERG confirmed that those statutes would remain and it would only be after the five-year period is (indisc.) that these new provisions would come into effect and be the disposition of the property. Number 1192 REPRESENTATIVE DAVIS noted that was somewhat confusing language, stating he understood it to be "within five years," transferred within five years. Number 1202 CHAIRMAN ROKEBERG referred to the relevant bill language on page 1; lines 6, 7 and 8; "except that, if the property is not claimed under AS 34.45.280 - 34.45.780 within five years after being paid or delivered to the state under AS, 34.45.320, the property shall be distributed as follows:". He asked what the sponsor's intention was there. Number 1212 REPRESENTATIVE DAVIS said "within five years" sounds fine, noting again he has not had lengthy discussions with the department on this question and was not completely sure he was reading that accurately. He noted he was not sure, indicating perhaps there might be transactions, research and investigations taking up to five years, or perhaps a legal requirement for a five-year period. Number 1252 CHAIRMAN ROKEBERG commented that the meaning of "within" concerned him, asking if Representative Davis had spoken about this with the bill drafter. The chairman suggested amending it to say "after", "not less than" or something similar, if Representative Davis did not look on that hostilely. He asked Representative Davis if that was his intention. REPRESENTATIVE DAVIS replied his intention was that it should be transferred within five years. CHAIRMAN ROKEBERG questioned the meaning, asking if it meant 4 years and 11 months. REPRESENTATIVE DAVIS said, "Two years, three years ..." REPRESENTATIVE SANDERS commented, "If it's not claimed within five years." SHIRLEY ARMSTRONG, Legislative Assistant to Representative Norman Rokeberg, stated, "Zero to five." Number 1284 CHAIRMAN ROKEBERG indicated a nonprofit could attempt to obtain this money within a limbo period, asking if that was correct. REPRESENTATIVE DAVIS replied that was his intent, but he was not sure if that was the way the bill is drafted or if that was the legal process currently in place. Number 1308 CHAIRMAN ROKEBERG indicated the committee could discuss it after hearing testimony from the DOR. Number 1329 RACHEL LEWIS, Administrator, Unclaimed Property Section, Income and Excise Audit Division, Department of Revenue, came forward to testify. She stated real and personal property are currently separated in Alaska Statutes; HB 417 would change it into one wording of "property" which could be difficult because the Department of Natural Resources (DNR) currently covered real property. She indicated this raised questions because the two types of property are handled in different ways. Ms. Lewis noted the legislation had no minimum amounts. For example, if $10 came in as intestate property, she asked if she would still need to advertise statewide. She said she also had a question about maximums, noting that had been mentioned. She stated intestate property was not identified as an unique property under AS 34.45, unclaimed property. Ms. Lewis said property comes in to the DOR as bank accounts, life insurance proceeds, but is not specifically identified as intestate property, and she stated, "So that identification factor as intestate property isn't something that we know, at the time that it comes to us, for the most part." Number 1423 MS. LEWIS continued, "Occasionally, and these are the only three times I've ever seen anything identified, a coroner's office will send us some property that they consider intestate property -- they've not been able to find anyone, the state has had to pay for the burial of the person, et cetera. A law firm has sent us property that they've done as much as they could to find the person who did have a will, but (indisc.) was left to their wife who predeceased them, and they didn't update their will, so they've not been able to find any heirs or beneficiaries on that one -- and then [the] only other would be if it came from the court system. But again, the property would have to be identified as intestate property because we don't have an investigator that would look to see, whatever name comes into us, if that person is alive or if the social security administration has 'em deceased or - or any of that kind of information. So, if the property came in and it was identified as intestate, I could put it into a program similar to this. Again, that would be personal property, it would be what we handle right now, and real property would throw a big wrench in - into our section. Department of Natural Resources probably would still be happy to handle real property." Ms. asked about the wording, "residing in at the time of death". She questioned, for example, if Anchorage would be entitled to the lifelong property of a person who had lived in Barrow all his or her life but who died in Anchorage where he or she was residing periodically to receive health care treatments. Number 1535 REPRESENTATIVE SANDERS confirmed Ms. Lewis did not feel the current procedure was broken and needed to be fixed. Number 1549 MS. LEWIS agreed. She also noted the state did not take ownership of property which comes in as unclaimed. That property stayed within the state in perpetuity for heirs or beneficiaries. She said there was an escheat law in 1986 that allowed seven years to make a claim then the state took ownership, but the Uniform Unclaimed Property Act took away that physical escheatment of property from anybody who had unclaimed property, so that property would be available for any heir or beneficiary forever. Number 1580 CHAIRMAN ROKEBERG questioned the disposition of any type of chattel, asking whether it was converted into cash or stored. MS. LEWIS replied that the only property they received was tangible property from safe deposit boxes and there was language allowing the department to auction those items off. She indicated that the items could be auctioned off after a year, noting it takes a year for the items to reach them and a year for them to advertise, so that an auction could be held the following year. However, she said an auction has never been held because they have never received enough property to cover the costs of an auction. CHAIRMAN ROKEBERG confirmed that if someone died intestate the contents of his or her safety deposit box would revert to the DOR for keeping in perpetuity; real property would be handled by the DNR and the escheat law was still in effect for seven years. Chairman Rokeberg commented, "So this is not just a 'help your local organization deal out,' it changes the entire escheat statute of the state of Alaska." Number 1645 REPRESENTATIVE RYAN confirmed that the contents of safety boxes coming under the Unclaimed Property Section's jurisdiction were inventoried. He asked if the contents were then just held onto forever. MS. LEWIS said they would eventually hold an auction when they ran out of storage space. REPRESENTATIVE RYAN posed a hypothetical situation, asking if an automobile would be left to depreciate to zero value or if it would it be converted to liquid assets. Number 1670 MS. LEWIS said she would need another example, noting most of the items have to fit in a safety deposit box. She suggested a pocket watch, gold nuggets or silver bars. REPRESENTATIVE RYAN said he was asking about something that would depreciate in value if kept, a soft good with a useful life. He asked, "Do we just set on it and hold it till it's of no value or wait for the upswing till (indisc.) collectors' value?" Number 1696 MS. LEWIS indicated the department does not play the market with stocks or any of those kinds of items that come into the Unclaimed Property Section from safety deposit boxes. She indicated that when they have enough items they can have an auction so the cost of the auction does not exceed the value of the items being sold. She noted Mr. Bartholomew might need to elaborate. Ms. Lewis noted not very much property comes in from safe deposit boxes. Number 1737 REPRESENTATIVE COWDERY said she mentioned real property had to be under DNR, but, he said, "Doesn't this bill on the first section state, 'Deliver to the state,' and both - both departments are in ..." MS. LEWIS said that was what scared her, the bill put them together. REPRESENTATIVE COWDERY said all departments had been put together, and he asked if he was correct in his reading that it would go to the appropriate department. MS. LEWIS replied, "It says repealed and reenacted, so it takes away part 1 and part 2 ...." Number 1747 BOB BARTHOLOMEW, Deputy Director, Income and Excise Audit Division, Department of Revenue, came forward to testify. To Representative Cowdery's question, Mr. Bartholomew said he thought it came to the state but then would be administered under Title 34, unclaimed property in DOR. He said DNR currently administers the real property that department receives under a different statute. He indicated HB 417 put both real and personal property under Title 34, so that the process currently used for personal property would be followed. Mr. Bartholomew stated he thought, as Ms. Lewis spoke to, that there were more steps in the process when dealing with real property. Regarding that, there was a fiscal note from the Income and Excise Audit Division of DOR asking for a position "out five years." He commented he wanted to clarify one other thing, indicating the previously discussed line 6 of the bill gave the original owner or any heirs five year to claim the property, it would remain untouched for five years, and a nonprofit would not be able to apply for it until after five years. He thought the rules on real property were different. Mr. Bartholomew said there would not be a fiscal note if the division did not have to deal with real property, but he indicated the position they have requested in year five would be involved with the business of transferring title and disposing of real property which would begin occurring in year five. Number 1834 REPRESENTATIVE COWDERY asked how taxes that might be accruing on real estate over that five-year period would be handled, if real estate was involved. Number 1849 MR. BARTHOLOMEW indicated he thought that currently if property taxes were not being paid the city had a claim against the estate, and the taxes would have to be satisfied or the lien taken care of before anyone could receive that property. REPRESENTATIVE COWDERY indicated he was referring to situations where the value was more than the taxes owed but there were outstanding taxes, giving the example of property worth $100,000 with $10,000 or $20,000 in outstanding taxes. He said he knew nothing was exempt from taxes in this situation. MR. BARTHOLOMEW said, "And I think before you could get clear title to it ..." Number 1883 REPRESENTATIVE COWDERY asked, "Before the state could get clear title or anyone?" MR. BARTHOLOMEW said, "Right. That ... you'd have to pay off the debt, so it'd be part of any settlement, ... if the state was gonna sell that property, or transfer that property to a nonprofit. And maybe Representative Ryan might know, ... I would think you'd have to satisfy the - the tax debt before ... a nonprofit could obtain real title ...." Number 1903 REPRESENTATIVE RYAN said, "(Indisc.) title reverts to the state, the state cannot be taxed by a subdivision so there wouldn't be anything for that period of time that the state held ownership of the property. Number 1911 CHAIRMAN ROKEBERG noted the committee had two other bills on the meeting calendar. Number 1915 REPRESENTATIVE DAVIS said he appreciated the questions and the review. He stated he thought it would be more of an administrative nightmare to have DOR handle real property disposition, indicating this could be solved simply by including the DNR statutes so that DNR would be handling any real property transactions. Regarding the question about the minimums, Representative Davis stated HB 417 referred to AS 34.45.280 to AS 34.45.780 which contained a $100 minimum, and it would be their intent to keep that minimum as it already stood in statute. Representative Davis said they would work on amendments to clarify any confusion about where the residency would be and acceptable possible recipients of the proceeds. He stated they recognized that this afternoon in reviewing the legislation and asking questions. Representative Davis indicated they had received communication from the department that morning and had not had time to completely address those concerns. He said they would certainly examine all the concerns raised by Mr. Bartholomew and Ms. Lewis, working with the department and reporting back to the committee. Number 1998 CHAIRMAN ROKEBERG confirmed that communication had not been in written form. The chairman suggested the clarity on the five-year period be very clear when the bill was reviewed, "not less than or whatever ...." Number 2013 REPRESENTATIVE DAVIS said he thought Mr. Bartholomew clarified that. CHAIRMAN ROKEBERG noted the committee had a different interpretation from Legislative Legal and Research Services. Number 2020 REPRESENTATIVE DAVIS said it was also completely opposite of his intention, stating, "'cause it would be, if it's not claimed by any possible heirs within five years, so it would not be available for distribution before five years." Number 2030 CHAIRMAN ROKEBERG stated HB 417 would be held for further action.
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