Legislature(2003 - 2004)

04/14/2003 01:01 PM Senate JUD

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
         SB 163-POWERS OF APPOINTMENTS/TRUSTS/CREDITORS                                                                     
                                                                                                                                
CHAIR SEEKINS announced SB 163 to be up for consideration.                                                                      
                                                                                                                                
SENATOR THERRIAULT  motioned to adopt CSSB  163(JUD), version \I.                                                               
There was no objection and it was so ordered.                                                                                   
                                                                                                                                
MR. BRAIN  HOVE, staff  to Senator  Seekins, said  this dovetails                                                               
with SB 87.                                                                                                                     
                                                                                                                                
     In 1997,  legislation was passed  making Alaska  one of                                                                    
     the   best   trust   jurisdictions   nationwide.   This                                                                    
     legislation  made two  significant changes  to existing                                                                    
     law. First,  it provided  that an individual  could set                                                                    
     up a  trust and have  the trust  as long as  the family                                                                    
     wanted. This  is known as a  perpetual trust. Secondly,                                                                    
     it provides  that an  individual could  set up  a trust                                                                    
     where he  or she  could be a  beneficiary and  have the                                                                    
     trust's  assets protected  from future  creditors. This                                                                    
     is known as a self-settled  spendthrift trust. Over the                                                                    
     last six  years, the states  of Delaware,  Rhode Island                                                                    
     and Nevada  have not only adopted  similar legislation,                                                                    
     but   also   incorporated   improvements   to   certain                                                                    
     provisions.  Idaho and  South  Dakota  have also  added                                                                    
     features  to their  general trust  laws  that now  make                                                                    
     them comparatively  advantageous. SB 163  places Alaska                                                                    
     trust legislation  back on an equal  footing with these                                                                    
     states.  Additionally,  SB  163 codifies  a  number  of                                                                    
     matters  that  have  been   accepted  by  Alaska  trust                                                                    
     practitioners,  as being  the common  law of  the state                                                                    
     for  which there  has  been  no statutory  counterpart.                                                                    
     Overall, these  changes are designed to  keep Alaska as                                                                    
     the  premier  trust  jurisdiction,  thereby,  not  only                                                                    
     retaining  financial  resources   in  state,  but  also                                                                    
     continuing  to  attract  non-resident trust  assets  to                                                                    
     Alaska.                                                                                                                    
                                                                                                                                
MR. JON BLATTMACHR  said he is the one  that originally suggested                                                               
the  legislation  to  allow  the  United  States  and  Alaska  in                                                               
particular  to  capture  business  that was  going  to  off-shore                                                               
jurisdictions  and to  create trusts  that  last as  long as  the                                                               
family wants.  He emphasized how extraordinarily  successful this                                                               
legislation has been  for the State of Alaska. SB  163 would help                                                               
Alaska   catch  up   and  in   certain  cases,   surpass  similar                                                               
legislation enacted in some other states.                                                                                       
                                                                                                                                
MR.  DOUG   BLATTMACHR,  Alaska  Trust  Company,   supported  the                                                               
statements  his brother  made adding  that  this helps  fine-tune                                                               
what they  have already done  and brings Alaska to  the forefront                                                               
of being a premier jurisdiction.  The legislation that has passed                                                               
has brought  significant business to Alaska.  They typically have                                                               
$20  million  to  $30  million  on  deposit  with  local  banking                                                               
institutions. In  2001, over  $700,000 additional  life insurance                                                               
premium tax  dollars came  to the state  and they  estimate about                                                               
$500,000 came in this year from his institution alone.                                                                          
                                                                                                                                
MR. STEVE GREER  said this bill has been two  years in the making                                                               
and  articulates what  they  believe  the common  law  to be.  It                                                               
clarifies  some of  the ambiguity  that the  original legislation                                                               
has and incorporates some Delaware provisions.                                                                                  
                                                                                                                                
MR. SHAFTEL  said he also supports  SB 163 and that  this vehicle                                                               
has been accepted and used widely by Alaska residents.                                                                          
                                                                                                                                
MR.  PETER BRAUTIGAM  said this  legislation that  they have  all                                                               
worked on since 1997 has been  beneficial to all of their clients                                                               
in Alaska that do estate planning.                                                                                              
                                                                                                                                
MR.  RICH HOMPESCH  said  he also  supports SB  163  for all  the                                                               
reasons mentioned.                                                                                                              
                                                                                                                                
MR. JOHN MAINE, Director, Division  of Child Support Enforcement,                                                               
said he was concerned about  how they could enforce child support                                                               
with regard  to trusts. They  hope this language does  not hinder                                                               
their ability to collect child support.                                                                                         
                                                                                                                                
SENATOR ELLIS asked if he  didn't understand the bill well enough                                                               
to  know if  it  would  hinder child  support  enforcement as  it                                                               
relates to trusts.                                                                                                              
                                                                                                                                
MR.  MAINE explained  that revocable  trusts  are something  they                                                               
have had to learn  to live with and they have  dealt with them in                                                               
three or four  cases. He said they removed the  word "primary" on                                                               
page  3, line  12,  and  the division  could  probably work  with                                                               
language about showing intent to defraud child support.                                                                         
                                                                                                                                
SENATOR  THERRIAULT  said  that   language  attracted  a  lot  of                                                               
attention when the bill passed originally.                                                                                      
                                                                                                                                
MR. GREER explained that page 3, line 12 [indisc].                                                                              
                                                                                                                                
TAPE 03-22, SIDE A                                                                                                            
                                                                                                                              
SENATOR ELLIS asked if the trust protection is new.                                                                             
                                                                                                                                
MR.  GREER  said the  language  didn't  add anything.  They  just                                                               
wanted to clarify that if there  is intent to defraud a creditor,                                                               
that transfer can be set aside.                                                                                                 
                                                                                                                                
SENATOR ELLIS asked for a comparison  in layman's terms of what a                                                               
trust protector,  a trustee advisor,  and a trustee would  be. He                                                               
asked whether  trust protectors are  something new that  they are                                                               
adding to the statute.                                                                                                          
                                                                                                                                
MR.  DOUG BLATTMACHR  replied yes,  they are  adding that  to the                                                               
statute,   but  it's   something   that  is   being  used   quite                                                               
extensively.  About 99  percent  of their  trusts  use the  trust                                                               
protector concept. It's  only there if the person  setting up the                                                               
trust wants  to put in  a trust protector  and that is  usually a                                                               
trusted friend  or advisor. They  can remove the trustee  if they                                                               
don't think he  is performing the job properly or  for any number                                                               
of other reasons without going to court.                                                                                        
                                                                                                                                
SENATOR  FRENCH  asked  if  these  are  called  asset  protection                                                               
trusts.                                                                                                                         
                                                                                                                                
MR. BLATTMACHR  replied that the  first piece of  legislation was                                                               
done for two primary reasons.                                                                                                   
                                                                                                                                
     To  allow trusts  to last  more than  the rule  against                                                                    
     perpeties,  which  is  about  80  years,  because  some                                                                    
     people want to continue a  trust for a longer period of                                                                    
     time for tax and non-tax reasons.                                                                                          
                                                                                                                                
     The main reason we wanted  to provide for these, what's                                                                    
     called self  settled spendthrift  trusts, is  where you                                                                    
     can be  a beneficiary and  not have the  asset attached                                                                    
     by future  creditors. We wanted to  encourage people to                                                                    
     make lifetime transfers...Right  now, under the federal                                                                    
     tax  code,  everybody has  a  million  dollars that  if                                                                    
     their  estate, if  they die  with less  than a  million                                                                    
     dollars, doesn't  pay any tax.  Well, you can  use that                                                                    
     during your  lifetime. So, many times  people will have                                                                    
     come to planners  and say, 'You know, when  we die, our                                                                    
     children have  to pay a fairly  significant estate tax.                                                                    
     What can we do?'                                                                                                           
                                                                                                                                
They may have  $4 million and indicate that they  live well below                                                               
their  means and  they don't  need all  this money  and they  can                                                               
transfer  that   to  their  children   today  and  get   all  the                                                               
appreciation out  of the estate.  So, if they transfer  a million                                                               
dollars, in  20 years  at historical rates  you're going  to have                                                               
probably  close to  $8 million  additional in  your estate  to be                                                               
taxed. If  you kept it, your  heir would pay about  $4 million in                                                               
tax.                                                                                                                            
                                                                                                                                
MR. BLATTMACHR  said he  wanted to  encourage people  to transfer                                                               
money  to their  heirs,  but  they might  transfer  too much  and                                                               
actually need to  have some money back. A  beneficiary feels more                                                               
comfortable making the  transfer knowing that if he  needs it, he                                                               
can go  back to  the trustee. A  lot of people  who set  up these                                                               
trusts  for  legitimate  reasons  are coming  back  to  the  U.S.                                                               
jurisdiction  because   they  don't  have  to   go  off-shore  to                                                               
legitimately accomplish what they want to accomplish.                                                                           
                                                                                                                                
SENATOR FRENCH asked if Alaska  had ever adopted the FTA, Uniform                                                               
Fraudulent Transfer Act.                                                                                                        
                                                                                                                                
MR. GREER replied they have not adopted the act.                                                                                
                                                                                                                                
SENATOR THERRIAULT  said the trust  protector is new  to statute,                                                               
but not new to the state.                                                                                                       
                                                                                                                                
MR. DOUG BLATTMACHR said they have  encouraged the use of a trust                                                               
protector.  "We think  that if  we can't  keep the  beneficiaries                                                               
happy, we probably don't want the relationship anyway."                                                                         
                                                                                                                                
SENATOR  FRENCH  asked  if  this bill  adds  any  protection  for                                                               
creditors.                                                                                                                      
                                                                                                                                
MR. BLATTMACHR replied that it  just clarifies some things - like                                                               
what is an existing creditor and what isn't.                                                                                    
                                                                                                                                
MR. GREER replied yes there was  an addition on page 5 that could                                                               
be very helpful [indisc]                                                                                                        
                                                                                                                                
SENATOR ELLIS  asked how these services  are marketed, especially                                                               
to folks outside of Alaska.                                                                                                     
                                                                                                                                
MR. DOUG BLATTMACHR  replied that in the beginning it  was a very                                                               
hot topic in the estate planning  community and they got a lot of                                                               
press.  Then there  were  about 15  seminars  across the  country                                                               
sponsored  by  New  York  Life,  a  company  that  markets  their                                                               
services at the  largest estate planning conference  that is held                                                               
each year. As  time goes on, more and  more professionals started                                                               
talking about it.                                                                                                               
                                                                                                                                
SENATOR THERRIAULT motioned to pass CSSB 163(JUD), version \I,                                                                  
from committee with individual recommendations. There was no                                                                    
objection and it was so ordered.                                                                                                

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