Legislature(2021 - 2022)BARNES 124
02/02/2022 05:15 PM House LABOR & COMMERCE
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SB131 | |
SB11 | |
Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
+ | SB 131 | TELECONFERENCED | |
+ | SB 11 | TELECONFERENCED | |
+ | TELECONFERENCED |
SB 11-COMMUNITY PROPERTY TRUSTS 5:45:25 PM CO-CHAIR SPOHNHOLZ announced that the final order of business would be COMMITTEE SUBSTITUTE FOR SENATE BILL NO. 11(JUD), "An Act relating to community property and to community property trusts; and providing for an effective date." 5:45:51 PM SENATOR TOM BEGICH, Alaska State Legislature, as the prime sponsor of CSSB 11(JUD), recounted that major legislation on trusts was signed into law in 1997, and that soon afterward, House Bill 199 by Representative Joe Ryan was passed, which provided that a couple can opt to put their assets into a community trust. Representative Ryan testified at the time that a positive element of House Bill 199 was that on behalf of the estate of a person in a community trust who has died, there would be no tax liability on any appreciation in the basis (the value of an asset at the time of purchase). Representative Ryan's testimony indicated that appreciation of the asset was critical in what he was trying to do. The intent in 1997 was that if a married couple put assets into a community trust and then 25 years later one dies before the other, the value of the assets in that community trust would include the appreciation as one of those assets. SENATOR BEGICH explained, however, that a recent court decision created ambiguity about that intent when the decision indicated that the value of the asset was the value at the time of the community trust as opposed to being the value of the asset accrued over time. He said CSSB 11(JUD) clarifies that the income and appreciation combined is what was intended by the author of the original bill; if enacted, it incorporates those elements of the Uniform Marital Property Act that were already said would be incorporated. It is an elect an option, it is not mandatory like some of the community property states. To not create constitutional issues with retroactivity, CSSB 11(JUD) includes a savings clause, thereby effectively reminding people what the meaning was back when the law passed. The bill is designed such that it would not affect any litigation that may be pending, or any litigation entered prior to CSSB 11(JUD) becoming law. The bill fixes a mistake in interpretation. When there is an ambiguity in any interpretation, the court often looks to the legislature to correct or clarify that ambiguity, which is what CSSB 11(JUD) does. 5:50:28 PM TREVOR BAILLY, Staff, Senator Tom Begich, Alaska State Legislature, provided the sponsor statement and sectional analysis for CSSB 11(JUD) on behalf of Senator Begich, prime sponsor of the bill. He paraphrased from the sponsor statement, which read [original punctuation provided]: Alaska is a state with favorable trust laws and favorable laws for property ownership between spouses. Alaska allows for "opt in" community property ownership between married spouses. Community property ownership can provide tremendous tax advantages to spouses. In Alaska, residents can enter into community property agreements, and residents and nonresidents can enter into Alaska community property trusts. This benefits the individuals entering these agreements, the trust industry of Alaska, increases deposits in Alaska banks and through the revenue generated by the formation of a new trust, the state. Community property is simply a way to own joint property. A common way to enter a community property agreement is in conjunction with one's spouse. Each party must elect into this agreement and the agreement provides, most commonly, equal ownership and management of specific property. Currently, community property has a significant tax advantage. When a spouse dies, community property is placed into a category that allows tax advantages when that property is sold. To realize these advantages, appreciation and income must be characterized as community property. The default rule has generally been that appreciation and income on community property will be characterized as community property, unless otherwise declared in the community property trust. Trust attorneys have attested to this interpretation, however recent court rulings have created an ambiguous understanding of this general criterion. This legislation, consistent with industry understandings of trusts, seeks to clearly define community property as including appreciation and income on community property. SB 11 establishes a clear definition of appreciation and income as community property, as intended by The Community Property Trust Act. Portions of this legislation also have a retroactive effective date of May 23, 1998. 5:53:05 PM MR. BAILLY next paraphrased from the sectional analysis, which read [original punctuation provided]: Section 1. Clarifies intent of subsection (h) under AS 34.77.030 to ensure any financial gains directly related to appreciation of community property trusts are treated as community property unless legal trust documents clearly state otherwise. Section 2. Adds a new subsection under AS 34.77.030 to retroactively apply the above changes in statute to community property trust agreements established on or after May 23, 1998. This section also applies an existing statutory definition of "community property trust." Section 3. Adds as a new uncodified law of the State of Alaska to ensure above changes do not impact court actions or proceedings that began before Section 1 of this Act takes effect. Section 4. Establishes a retroactivity date of Section 1 of this Act as May 23, 1998. Section 5. States Section 1 and Section are immediately effective upon passage of this legislation. 5:54:20 PM CO-CHAIR SPOHNHOLZ shared her understanding that the bill as written would not nullify previously taken court action, but it would allow currently existing community property trusts to have that appreciation incorporated into the value moving forward. SENATOR BEGICH confirmed that that understanding is correct. 5:54:52 PM REPRESENTATIVE MCCARTY drew attention to the sponsor statement, first paragraph, fourth line, which states that residents and nonresidents can enter Alaska community property trusts. He inquired about how far reaching the ability is for nonresidents to be involved in this. SENATOR BEGICH replied that that has been allowed under the law since 1998. He recounted that Representative Ryan talked about there being 41 states (at that time) that were not mandatory community property states. Those 41 states have had the ability to take advantage of Alaska's laws since passage of the original [Community Property Trust Act], otherwise Alaska would probably be in violation of the commerce clause of the federal constitution. So, residents and nonresidents are mentioned because the community property trusts are open. Senator Begich pointed out that this leads to an enhanced ability for people who don't live in Alaska to take advantage of the state's community property trust law, which increases income into Alaska and provides some support for the banking systems in the state. It makes Alaska an attractive place to enter a community trust if someone wishes, so CSSB 11(JUD) creates an incentive. Not having this bill in place, and having the ambiguity, acts as a disincentive so that people are disinclined to come to Alaska to start their community trust if they choose to have one. 5:57:08 PM REPRESENTATIVE SCHRAGE requested an explanation of the effective date. SENATOR BEGICH responded that there are two effective dates in the bill. The first effective date, which is Section 4, is the retroactivity clause that is an effective date. The second only deals with Sections 1 and 4 of the Act to ensure that the retroactivity becomes effective on passage of the effective date. A trigger must be had to make the retroactivity become effective; in Section 1 an effective date is not needed for the other two, so just Sections 1 and 4 are immediate. REPRESENTATIVE SCHRAGE asked why beginning in 1998. SENATOR BEGICH answered that that's the date when the law became effective immediately. 5:58:47 PM SENATOR BEGICH noted that Linda Hulbert, an invited testifier who may or may not be online, has a financial relationship in a trust relationship with a member of his staff. He stated that has had no impact and is not it a reason why this legislation was considered. CO-CHAIR SPOHNHOLZ responded that Ms. Hulbert is not online. CO-CHAIR SPOHNHOLZ [opened invited testimony on CSSB 11(JUD)]. 5:59:30 PM MATTHEW BLATTMACHR, President and CEO, Peak Trust Company, provided invited testimony in support of CSSB 11(JUD). He said he personally supports the bill, as does Peak Trust Company. He said thousands of Alaskans, if not tens of thousands, have utilized this provision in Alaska statutes for the last 25 years. The intent of all those plans was that accumulation of income and appreciation would be included in community property. This bill corrects an error and gets things back to what was originally intended. 6:00:59 PM ABIGAIL O'CONNOR, Attorney, O'Connor Law LLC, Alaska Trust & Estate Professionals Inc. (ATEP), provided invited testimony in support of CSSB 11(JUD). She said she represents numerous clients in Alaska who have community property trusts. Having appreciation and income also be community property, she continued, is a critical element of the whole community property structure and planning, without it there is not much point to doing it. It is critical that appreciation and income also be community property. She said she supports CSSB 11(JUD) because going forward trusts can be written to include this language; however, given the court ruling, trusts created prior to this time may not have that language and the bill solves that problem for those Alaskans. 6:02:45 PM CO-CHAIR SPOHNHOLZ [held over CSSB 11(JUD)].