Legislature(2011 - 2012)BELTZ 105 (TSBldg)
02/01/2012 01:30 PM Senate JUDICIARY
| Audio | Topic |
|---|---|
| Start | |
| SB173 | |
| SB165 | |
| Update on Case Dismissals | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | SB 165 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| = | SB 173 | ||
SB 165-PRINCIP.& INC/PROBATE/UTMA/RETIREMT/ETC.
1:36:18 PM
CHAIR FRENCH announced the consideration of SB 165 and asked for
a motion to adopt the proposed committee substitute (CS),
version D.
1:36:45 PM
SENATOR WIELECHOWSKI moved [to adopt the work draft CS for SB
165, labeled 27-LS0819\D, as the working document.]
CHAIR FRENCH found no objection and announced that version D was
before the committee.
CINDY SMITH, staff to Senator French and aide to the Senate
Judiciary Committee, read the sponsor statement for SB 165 into
the record.
Alaska first modernized its trust and estate
legislation in 1997. Since then, the trust and estate
planning community continuously makes recommendations
to the legislature for updates and improvements to
Alaska's trust and estate laws to ensure that Alaska
can continue to provide the best possible planning
solutions. Alaska's trust and estate laws have
significant impact on our economy, bringing literally
millions of dollars to the state and creating jobs
within the trust, banking, insurance and legal fields.
Senate Bill 165 provides for amendments to statute in
the following areas:
· Extends protection for retirement plan assets to
the beneficiaries of retirement plans (often the
surviving spouse).
· Provides means of representation for minors and
incapacitated persons in dealing with
settlements of accounts or settlement
agreements.
· Amends the 2003 Alaska Principal and Income Act
to conform with current IRS regulations.
· Provides rules concerning who may control the
disposition of decedents' remains.
· Makes conforming amendments to Alaska's laws
regarding insurable interests to align with
changes to the Uniform Trust Code.
· Provides that IRA interests can be voluntarily
transferred to a family member or trust.
· Makes amendments to Alaska's community property
provisions to update and clarify the ownership
of community property.
· Allows a beneficiary to extend the time that
funds will be held in a Uniform Transfer to
Minors Account
Passage of SB 165 will ensure that Alaska remains the
premier state in which to establish trusts and estates.
CHAIR FRENCH asked Mr. Shaftel to provide the sectional
analysis.
1:39:08 PM
DAVID SHAFTEL, Attorney, said he works in the areas of estate
planning and trust and estate administration, and is a member of
an informal group of attorneys, trust officer and financial
planners who have been working with the Legislature since 1997
to suggest improvements to Alaska trust and estate laws. He
described SB 165 as an excellent bill with a number of
substantial provisions that will improve Alaska estate planning
statutes.
1:42:02 PM
MR. SHAFTEL provided the following sectional analysis for SB
165.
Section 1 deals with asset protection for inherited retirement
plans. Current statute protects an individual's interest in
their retirement plan, such as an IRA, from creditor claims, and
this extends this protection to claims of a beneficiary's
creditors. This provision follows federal bankruptcy law.
SENATOR PASKVAN asked if the asset has to remain in the IRA.
MR. SHAFTEL replied it has to remain in the IRA, which is most
advantageous to the beneficiary such as a surviving spouse
because it can be spread it over his or her lifetime. Income tax
is only paid when the funds are distributed.
SENATOR PASKVAN asked if there is a cap on the amount that can
be withdrawn and still protected under federal bankruptcy law.
MR. SHAFTEL replied that under the 2005 bankruptcy Act the
maximum amount that can be protected is $1 million. That's for
an IRA that an individual creates and contributes to over his or
her lifetime and is rolled over.
SENATOR PASKVAN said he was focusing on the income stream
flowing from the corpus. He asked if an income stream of $20,000
per month, for example, would be protected.
MR. SHAFTEL replied the funds are not protected once
distributed; this provision protects the funds while in the IRA.
1:46:06 PM
SENATOR FRENCH summarized that if he were to pass away and his
wife was the beneficiary of his $1 million IRA, those funds
would be protected against federal bankruptcy claims as well as
state bankruptcy claims under SB 165. He asked if a $100,000
withdrawal would be subject to creditor claims under both
federal and state law.
MR. SHAFTEL answered yes. A creditor cannot reach any of the $1
million while it's in the fund, but a creditor could reach any
distribution from that fund made over the beneficiary's
lifetime.
CHAIR FRENCH commented that it's an interesting balancing act
between the creditor and the inheritor.
1:47:59 PM
MR. SHAFTEL said the next substantive provision is in Section 4,
representation for settlement agreements. Current statute
provides that minors and incapacitated persons may be
represented by another person who has the same interests in the
matter. This clarifies that it applies to both judicial and non-
judicial settlements.
Sections 6-22 amend the 2003 the Alaska Principal and Income
Act, which allows a person creating a new trust, or a trustee of
an existing trust, to adopt a "unitrust" approach for
determining the income of the trust that may have to be
distributed annually. This amendment allows a trustee to select
a unitrust rate ranging from three percent to five percent
averaged over 5 years, rather than the current four percent
rate. An explicit definition of income is provided for a
unitrust and language was added to provide an ordering of the
distributions among types of income and principal. The new
provisions also clarify how unitrust rules will apply to
retirement benefits..
1:56:18 PM
SENATOR PASKVAN asked, under the disqualified trustee issue, if
there were fiduciary standards in law that the trustee must
abide by.
MR. SHAFTEL answered yes; the fiduciary standard is very high.
If there is an abuse of discretion and damages result, the
injured parties can go to court and the trustee could lose his
or her position and be held liable.
SENATOR PASKVAN asked if there are disclosure requirements as to
potential conflicts of interest.
MR. SHAFTEL replied there isn't an up-front disclosure for
trustees, but the practice in his office, and others, is to give
newly appointed trustees a pamphlet that discusses their duties
and responsibility so they're made aware up front. The trustees
are required to sign that they've read the pamphlet and that
becomes part of the trust packet.
CHAIR FRENCH asked what the difference is between a trust and a
unitrust.
MR. SHAFTEL explained that the unitrust is a term for the annual
payment that's made that is based on a percentage of the
principal. The trust itself is a broader instrument. For
example, you put $500,000 in a trust for your wife and the
remainder to your kids. The trust concept is that you name a
trustee for that trust, a bank for example. That trust has
certain assets and those are owned by the trustee, the bank, and
the bank must administer that trust according to the directions
in the trust instrument for the benefit of the beneficiaries.
Your wife and children are the beneficiaries in this example.
The unitrust amount refers to the fact that you may have set up
the trust and directed an annual payout to your wife equal to
five percent of the assets in that trust. That concept in itself
is called the unitrust.
CHAIR FRENCH commented that it's simply a designation of the
payout mechanism and percentage.
MR. SHAFTEL agreed.
2:00:55 PM
CHAIR FRENCH asked if the percentages established in Section 11
might have to be adjusted in the future in order to maintain the
strength of a trust's buying power over time.
MR. SHAFTEL replied the Legislature could do that, and another
way would be through the Act itself, which contains provisions
for going to court to get a different percentage. If the trustee
decides to go to court to petition for a different percentage,
everyone gets noticed so that they can exercise their right to
participate. In the above example, both the wife and children
would have the right to participate.
CHAIR FRENCH noted that the court process was addressed in
Section 14.
2:03:22 PM
SENATOR COGHILL asked if the three percent to five percent
payout might become a major tax consideration.
MR. SHAFTEL replied the trustee has to take that into
consideration as well because the distribution is taxed as
ordinary income. If a five percent distribution came out and
that trust made more than five percent income that year, it
would all be taxable to the spouse at that point. That isn't any
different than in the prior structure that says all the income
gets paid out to the spouse every year. For example, if the
spouse is getting a payout of $20,000 and the trust earned
$20,000 of income that year, there is taxability on that full
$20,000.
2:05:49 PM
MR. SHAFTEL said Sections 23-25 amend the Alaska Uniform
Transfers to Minors Act. These new provisions address parental
concerns about some children's ability to responsibly manage
funds. Some years ago Alaska adopted a statute for Uniform
Transfer to Minor Accounts that allow parents to gift up to
$13,000 per year into their child's account tax free. The
custodian of the account, who may or may not be the parent, can
use the funds for the benefit of the minor and when the minor
reaches age 18 or age 21 those funds become the minor's funds.
An IRS provision says the child can have the funds at age 18 or
25 if he or she wants them. Under current state statute the
child may agree not to take possession of the funds at age 18 or
21, but the outer limit is age 25. This provision allows the
money to be held in that account for much longer periods of
time, if the minor consents. It will not run afoul of the
Internal Revenue Code regarding these accounts.
2:11:00 PM
SENATOR MCGUIRE asked if it was necessary to delete the existing
statutory reference to 25 years of age. She expressed concern
that removing the reference would eliminate that option.
MR. SHAFTEL responded the intent was to allow full flexibility
to choice any age.
SENATOR MCGUIRE said she wanted to be sure that this amendment
wouldn't eliminate the ability to extend custodial control up to
age 25, without having to sit down and reason with an 18-year-
old. She worried that deleting the reference in Section 23 and
Section 25 would eliminate that option.
MR. SHAFTEL recalled that the language "in certain
circumstances" referred to the circumstances of going to the
child and asking for consent.
SENATOR MCGUIRE asked Mr. Shaftel to follow up with additional
information about: 1) what the certain circumstances were, 2)
why 21 years of age was referenced - on page 2 of the summary,
and 3) why age 25 was referenced. She reiterated her reluctance
to give up an opportunity for more discretion in distribution.
She said she would understand if this was necessary to maintain
the tax free status of the account, but she wanted to have the
discussion. She also asked how long the distribution can be
delayed and what recourse the child has if he or she wants to
withdraw consent for delayed distribution. She provided an
example.
MR. SHAFTEL responded that this account is very much like a
trust; a custodian is named but the money belongs to the child.
The custodian is like a trustee and is supposed to make
decisions to use the money for the child's benefit and would be
held accountable for an abuse of discretion.
SENATOR MCGUIRE said it's a good reminder that the same
protections apply with respect to abuse of discretion, and that
the custodian is managing the account for the benefit of the
trustee.
MR. SHAFTEL said that's correct and confirmed he would follow up
with the information she requested.
2:18:49 PM
SENATOR PASKVAN questioned whether extending the distribution
farther into the future might increase the likelihood that the
beneficiary would not consent to the extension. He posed the
hypothetical of a minor who at age 21 consented to a 20 year
extension, and asked if in five or so years there would be an
opportunity for a secondary option.
MR. SHAFTEL responded that while it's not always the case,
Alaska law presumes that a person is an adult at age 18 and can
make decisions, enter into contracts and be bound; they are
responsible for their actions. He opined that a person who has
reached age 18 and lacks maturity would likely be resistant to
an extension and very resistant to a long-term extension. He
suggested that a practical approach would be to revisit the
decision to extend at the end of that timeframe. If at that time
there still were reasons for an extension, it could be extended
again.
The language does not speak to the situation of someone who at
age 21 agreed to a 20-year extension and then at age 30 decided
the reason for the extension no longer existed. However, the
matter could be taken to probate court. The custodian would have
to justify any objection they might have, otherwise the
extension would likely be terminated.
2:22:44 PM
CHAIR FRENCH directed attention to page 15, Section 15,
subsection (i)(1), regarding the power of a minor to compel
distribution, and asked for the range of ages that could apply.
MR. SHAFTEL replied depending on the type of transfer, the
distribution can be tied up initially until age 18 or age 21.
But the statute provides that if at age 18 or age 21 the minor
agrees, it can be extended to age 25.
CHAIR FRENCH asked if he was saying that the upper limit for an
extension for a minor who does not consent is age 21 and maybe
age 25.
MR. SHAFTEL replied it's age 21 unless the minor consented
previously.
CHAIR FRENCH asked Mr. Shaftel to double check and follow up
with an email, and he would distribute it among the members. He
commented that it's a nice circuit breaker for the minor.
MR. SHAFTEL said that Section 26 relating to a decedent's
remains was a suggestion by directors of funeral homes to give
guidance as to who to take directions from in the disposition of
human remains. This provision provides a disposition document
that prioritizes the people who will have this authority and
estate planning attorneys will have their clients sign the form.
The provision includes some technical areas. For example, if
people put directions regarding disposition of their remains the
will does not have to be probated. There is also a liability
provision that says that funeral homes that follow this
direction will not be held liable.
2:28:09 PM
CHAIR FRENCH said he's pleased this is being addressed, because
it can be very traumatic to try to get a body released.
SENATOR PASKVAN asked if funeral home operators had raised the
issue of same sex domestic partners.
MR. SHAFTEL replied that wasn't mentioned directly, but a person
could designate a domestic partner as the agent on the
prioritized list.
SENATOR PASKVAN asked if that was on page 16, lines 13-14.
MR. SHAFTEL answered yes.
CHAIR FRENCH added that it would need to be done in advance.
MR. SHAFTEL said one of the benefits of this approach is that it
allows a person to decide who will have that authority.
Section 27 deals with insurable interests. The concept in the
law generally is that for one person to buy an insurance policy
and benefit from the death of another person there must be some
sort of close connection between the people. Most states have
statutes regarding insurable interests, but many are unclear.
This provision generally follows the Uniform Trust Code
provisions to cure this problem.
Section 28 deals with transfers of IRA interests. This provision
clarifies that an individual may transfer his or her IRA into a
grantor trust. The transferred assets must be accounted for
under the gift tax but those assets and the growth would not be
included in the gross estate and taxed at death.
CHAIR FRENCH asked how many jurisdictions had adopted this rule.
MR. SHAFTEL replied this wasn't found in other jurisdictions, it
was suggested as something that would be beneficial in
minimizing estate taxes at death.
Sections 29-33 add clarification to Alaska's optional community
property system that was enacted in 1998. It clarifies that if
the spouses determine that an asset is community property, the
form of title is not determinative. If the title of the property
is in the form of survivorship between the spouses, the
presumption is that the survivorship provision does not change.
If a spouse designates a beneficiary for an interest in what is
community property, it is only effective for that spouse's half
interest, unless the other spouse consents in writing. There are
also provisions about remedies for improper transfers of
community property and limitation periods during which those
remedies can be pursued.
2:42:17 PM
SENATOR PASKVAN asked if the surviving spouse's claim would
apply only to property that's designated with a right of
survivorship or any property acquired during the term of the
marriage.
MR. SHAFTEL replied it would not be limited to survivorship
property. That was just one area of concern. It could be that a
$500,000 account was just in the husband's name but the two
spouses together entered into a community property agreement
regarding that account. If the husband decides during his
lifetime to make gifts of it to his children from a former
marriage, the wife can still claim half the money.
CHAIR FRENCH asked Mr. Blattmachr to provide his views on the
bill.
2:43:57 PM
DOUGLAS BLATTMACHR, Alaska Trust Company, stated support for SB
165 and urged the committee to pass the bill. It brings
clarification and good provisions that Alaskans can use.
CHAIR FRENCH stated that Mr. Shaftel would be invited back to
finish explaining the repealers and the last few indirect rule
changes. He announced he would hold SB 165 in committee.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB 165 Sponsor Statement.doc |
SJUD 2/1/2012 1:30:00 PM |
SB 165 |
| SB 165 Sectional Analysis.doc |
SJUD 2/1/2012 1:30:00 PM |
SB 165 |
| CS for SB 165 version D.pdf |
SJUD 2/1/2012 1:30:00 PM |
SB 165 |
| SB 165 Explanation of Changes Version D.doc |
SJUD 2/1/2012 1:30:00 PM |
SB 165 |
| SB 165 Letter of Support.pdf |
SJUD 2/1/2012 1:30:00 PM |
SB 165 |