Legislature(2019 - 2020)BELTZ 105 (TSBldg)
03/04/2020 01:30 PM Senate JUDICIARY
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| Audio | Topic |
|---|---|
| Start | |
| SB8 | |
| SB191 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 8 | TELECONFERENCED | |
| += | SB 191 | TELECONFERENCED | |
| + | TELECONFERENCED |
SB 191-TRUSTS, TRUSTEES, COMMUNITY PROPERTY
1:51:02 PM
CHAIR COGHILL announced the consideration of SENATE BILL NO.
191, "An Act relating to trusts and trustees, including trust
division, the powers of trustees, delayed gifts to trusts, and
community property trusts; and providing for an effective date."
He noted that in response to discussion during the previous
hearing, there were amendments for the committee to consider.
1:53:09 PM
CHAIR COGHILL moved to adopt Amendment 1, work order 31-
LS1370\A.1:
31-LS1370\A.1
Bannister
3/2/20
A M E N D M E N T 1
OFFERED IN THE SENATE BY SENATOR COGHILL
TO: SB 191
Page 6, line 22:
Delete "or a right accrued"
SENATOR MICCICHE objected for discussion purposes.
1:53:36 PM
AIMEE BUSHNELL, Staff, Senator John Coghill, Alaska State
Legislature, Juneau, Alaska, sponsor of SB 191, explained that
Amendment 1 will delete language from Section 7, the savings
clause. The savings clause states, "Notwithstanding sec. 6(b) of
this Act, this Act does not affect an action or proceeding begun
before the effective date of sec. 5 of this Act." This is
related to appreciation and income of community property. She
explained that community property is a way for married couples
to own property in certain states. Alaska is different from most
states.
She said in Alaska, married couples can elect to have some, or
all of their property treated as community property by stating
so in a written contract or a trust agreement. This type of
ownership in Alaska is not the default manner in which property
is held by married couples as it is in most other community
property states. If all of the couple's property is owned as
community property, then all assets purchased or acquired by a
couple during their marriage are owned equally by both spouses.
Debts also fall under the umbrella of community property in
certain circumstances. Because of the nature of community
property, everything that comes from community property such as
appreciation and income is usually treated as community
property. There are significant income tax benefits associated
with community property. She related a scenario to illustrate.
Assume a married couple purchased a building for $100,000 and
designated it as community property. Over time, the building
appreciated and is worth $1 million at the time of the husband's
death. Since the building is designated as community property,
the widow will receive full fair market value in the building
for $1 million. If she subsequently sells the building for $1
million, for income tax purposes it would be treated as though
she paid $1 million for the building instead of the actual
$100,000 paid. As a result, the widow would not pay any capital
gain taxes. Had the building been held 50/50 as non-community
property, the husband's one-half interest basis after adjustment
to fair market value would be $500,000, and the widow's 50
percent would have a $550,000 basis in the property instead of
$1 million. The widow would have capital gains on $450,000 due
to appreciation. Elimination of capital gains on appreciation at
death is the income tax benefit of community property.
MS. BUSHNELL explained that without clarification provided by
Amendment 1, in a divorce case a person's right to potentially
more than half of the property's appreciation and income will
have begun accruing when they set up the community property. The
sponsor does not wish to have any confusion on how community
property is treated.
1:56:43 PM
CHAIR COGHILL reiterated that Amendment 1 relates to an accrual
on community property.
1:57:13 PM
SENATOR MICCICHE removed his objection.
There being no further objection, Amendment 1 was adopted.
1:57:41 PM
CHAIR COGHILL moved to adopt Amendment 2, work order 31-
LS1370\A.2.
31-LS1370\A.2
Bannister
3/2/20
A M E N D M E N T 2
OFFERED IN THE SENATE BY SENATOR COGHILL
TO: SB 191
Page 6, line 26:
Delete "Sections 5 and 8"
Insert "Sections 5, 7, and 8"
SENATOR MICCICHE objected for discussion purposes.
1:57:55 PM
MS. BUSHNELL explained that Amendment 2 would provide an
immediate effective date to Section 7, the savings clause,
making it take effect immediately with Section 5, related to
community property, and Section 8, providing retroactivity. The
goal is to prevent the savings clause from having an effect on
any current court proceedings by providing the same effective
date as the other sections related to Section 7.
1:58:25 PM
SENATOR MICCICHE removed his objection.
There being no further objection, Amendment 2 was adopted.
1:58:44 PM
SENATOR KIEHL moved to adopt Amendment 3, work order 31-
LS1370\A.5.
31-LS1370\A.5
Bannister
3/2/20
A M E N D M E N T 3
OFFERED IN THE SENATE BY SENATOR KIEHL
TO: SB 191
Page 6, following line 5:
Insert a new subsection to read:
"(d) A person that sells to a third party a
promise that is treated as a note that becomes a
negotiable instrument under (c) of this section shall
provide written notice to the buyer that the note was
derived from a promise made under this section, that
consideration was not provided to the promisor, that
the note is not backed by assets or collateral, and
that the note is not guaranteed by the trustee or the
seller. The notice must be in at least 14 point bold
face type. A buyer may void the sale if notice is not
provided under this subsection."
CHAIR COGHILL objected for discussion purposes.
SENATOR KIEHL explained that Amendment 3 relates to a concern
raised at the last hearing related to the potential abuse
related to the "promise of a gift" to a trust which becomes a
promissory note in the bill. His initial suggestion was to limit
who could purchase the promissory notes to accredited investors
and regulated financial institutions, which would guarantee that
highly sophisticated investors would buy these promissory notes.
He worked with the sponsor's staff and advocates for the bill on
this compromise language. Amendment 3 uses a disclosure
approach. Someone used the term "caveat emptor" or "buyer
beware" but this amendment will ensure that the person buying
one of these notes is provided a disclosure about the nature of
the promissory note to make an informed decision. Amendment 3
would not limit who could buy or sell promissory notes, but it
will provide a "heads up" to potential buyers.
2:01:03 PM
JONATHAN BLATTMACHR, Principal, ILS Management, LLC, Long
Island, New York, said he believes that Mr. Shaftel and Ms.
O'Connor worked on the language in Amendment 3 and it is
acceptable.
2:01:49 PM
DAVE SHAFTEL, Attorney, Shaftel Delman, LLC, Anchorage, Alaska,
reviewed the language in Amendment 3 and described it as an
improvement to the bill.
2:02:41 PM
SENATOR MICCICHE offered his view that Amendment 3 was not
necessary and expressed concern about the language, "that the
note is not backed by assets or collateral, and that the note is
not guaranteed by the trustee or the seller." He asked what
would happen if the promise was backed by assets or collateral.
MR. SHAFTEL acknowledged that was a good point. He suggested
that there could be variable language in the disclosure
statement and if a [promissory] note was secured, the disclosure
could be modified.
CHAIR COGHILL related his understanding that these promissory
notes were purposefully not backed.
MR. SHAFTEL deferred to Mr. Delman.
2:04:28 PM
JAMIE DELMAN, Attorney, Shaftel Delman LLC; member, Alaska Trust
& Estate Professionals, LLC, Anchorage, Alaska, responded to
Senator Coghill's question on whether the promissory note is
backed. He pointed out that there are two separate transactions.
The first transaction is the initial promise to make a gift to
the Alaska Gift Trust. The second transaction, which Senator
Kiehl raised concerns about, is the potential of the unlikely
sale of that negotiable instrument to a third party after the
promise was made. Senator Micciche raised the concern that there
would not be any restriction on a trustee deciding to back the
promissory note with other assets of the trust, in the event of
a sale. The second sales transaction is separate from the
original gift transaction, he said.
CHAIR COGHILL summarized the explanation.
MR. DELMAN replied the second transaction would be related to
the first transaction, but it is not the same transaction.
SENATOR MICCICHE said his point is that the promise of a gift
might be secured by any number of methods. This language seems
to say the same written notice is required whether or not the
promise of a gift is guaranteed by the trustee or the seller. A
person may have a reason to make a promise for something that
has a set value, and that value may be different in the future
due to earnings potential that has a set value that is
guaranteed. This language seems to say that none of them will be
guaranteed. He offered that all of this would have a low
probability of happening, but if Amendment 3 makes someone feel
better, there should be a separation between a guaranteed
promise and one that is not guaranteed.
2:07:33 PM
MR. DELMAN agreed the committee could amend Amendment 3 to make
it clear that it does not prohibit guaranteeing the [promissory
note].
MR. DELMAN suggested the committee could amend Amendment 3, on
lines 6-7, to read, "that the note is not backed by assets or
collateral, and whether the note is guaranteed by the trustee or
the seller." He explained the proposed change, on line 7 to
delete "that" and insert "whether" and after "is" to delete
"not" before "guaranteed."
2:09:12 PM
At-ease.
2:10:15 PM
CHAIR COGHILL reconvened the meeting.
2:10:28 PM
SENATOR REINBOLD asked for a simple description and the
intention of Amendment 3.
SENATOR KIEHL explained that Amendment 3 would provide a notice
to consumers who potentially might buy a promissory note
[established by the Alaska Trust Gift]. He envisioned this would
probably pertain to family members of the person who established
the trust. However, the potential exists for someone to use the
note or negotiable instrument in unethical ways. The disclosure
would ensure that the potential buyer has a "heads up" to take a
closer look at the transaction. This approach would not limit
who can trade in these notes since doing so could present
problems for the trusts.
2:12:56 PM
CHAIR COGHILL explained that the concept is to make an
irrevocable gift to receive estate tax exemptions. The question
is if the language in the bill allows a person to do something
less than honorable by gifting without notifying potential
beneficiaries of the trust. He suggested that was a reasonable
concern.
SENATOR REINBOLD asked for the effect if a verbal commitment was
made. She asked who the testifiers were and what organizations
they represent.
2:14:43 PM
ABIGAIL O'CONNOR, Attorney, O'Connor Law, LLC; Vice President,
Alaska Trust & Estate Professionals, Anchorage, Alaska, stated
she has been involved in a group called Alaska Trust and Estate
Professionals, a group whose sole interest is helping to improve
Alaska's statutes regarding trusts and estates.
She advised that the promise to make a gift has to be in writing
and the [negotiable instrument] being sold would be a written
promise to a trust. These are safeguards in the bill. A person
cannot make a verbal promise under this statute.
2:16:42 PM
CHAIR COGHILL directed attention to Section 4, which is the
Alaska Gift Trust.
CHAIR COGHILL solicited a motion to withdraw Amendment 3 to
allow time to craft the sponsor's intent.
2:17:32 PM
SENATOR KIEHL withdrew Amendment 3.
SENATOR MICCICHE acknowledged the concerns raised. He offered
his view that making a buyer beware statement for every
promissory note that becomes a negotiable instrument is not
reasonable. He said he was willing to work with the sponsor on
language, but it had limited value.
CHAIR COGHILL announced that Amendment 3 is withdrawn.
2:18:40 PM
CHAIR COGHILL moved to adopt Amendment 4, work order 31-
LS1370\A.6.
31-LS1370\A.6
Bannister
3/3/20
A M E N D M E N T 4
OFFERED IN THE SENATE BY SENATOR COGHILL
TO: SB 191
Page 6, following line 5:
Insert a new subsection to read:
"(d) A married person who intends to make a
promise under this section shall give the person's
spouse 30 days' written notice that the person intends
to make the promise. The notice must adequately
disclose the terms of the promise, the amount of money
to be transferred, the name of the trust to which the
money will be transferred, the name and address of the
trustee of the trust, and the identity or a
description of the beneficiaries of the trust. The
person's spouse may waive the notice in writing."
SENATOR MICCICHE objected for discussion purposes.
2:19:14 PM
MS. BUSHNELL referred to page 6, line 5, and read Amendment 4,
which was crafted to address a member's concern. The purpose is
to add good practice without adding language that is too
restrictive and devalues the note. The goal is to help married
couples who intend to make gift trusts to have good
recordkeeping, so at the time of the promisor's death, the debt
against the estate will not come as a surprise and negatively
impact the surviving spouse or beneficiaries.
2:20:17 PM
SENATOR REINBOLD moved to adopt an amendment to Amendment 4, on
line 8, to delete, "The person's spouse may waive the notice in
writing."
CHAIR COGHILL objected for discussion purposes.
2:21:02 PM
SENATOR HUGHES said she would like to discuss the underlying
amendment to better understand the proposed amendment to
Amendment 4.
CHAIR COGHILL asked Mr. Delman if any technical legal or
practical challenges would arise from Amendment 4.
2:22:12 PM
MR. DELMAN asked why the committee would not want a spouse to
have the ability to waive the notice in writing. For example, if
the wife would like to promise to make a gift to a trust and
informs her husband and he agrees, the couple may not want to
wait 30 days to finalize the gift. He advised members that most
spousal rights allow for a written waiver in writing. He
questioned why this should be different.
SENATOR REINBOLD expressed concern that a spouse may have access
to his or her spouse's email. She asked if the written waiver
should have a notary requirement to make sure that the spouse is
involved.
2:23:43 PM
MR. DELMAN asked her to clarify the email example.
SENATOR REINBOLD expressed concern that the language does not
say how the notice could be waived, which might create potential
loopholes.
MR. DELMAN asked if she would be more comfortable if it was
amended to say the person may waive the notice in an
acknowledged writing.
SENATOR REINBOLD suggested that it should be notarized.
MR. DELMAN answered that adding notarized would be fine because
a waiver would typically be notarized.
CHAIR COGHILL questioned how that would affect the whole
amendment.
2:25:55 PM
SENATOR HUGHES asked whether the promise would be invalid if the
notice was not issued.
MR. DELMAN suggested that the committee may wish to amend
[Amendment 4] to provide that the promise of a gift is voidable
if proper notice has not been provided.
SENATOR HUGHES related a scenario to illustrate similar
concerns, such that in a second marriage a husband wants to gift
$10 million in community property to a trust for his children
from a prior marriage. She asked if the second wife would need
to acknowledge the gift by signing.
2:28:05 PM
MR. DELMAN asked if her scenario relates to community property
being gifted or if it is a promise to make a gift that is not
necessarily community property.
CHAIR COGHILL interjected that the amendment affects the promise
to make a gift to a trust under the new section of law. If the
scenario relates to trusts the committee may wish to clarify how
Amendment 4 generally would relates to trusts.
SENATOR HUGHES acknowledged that estates and trusts can get
sticky in second marriages, especially when one or both spouses
have children from the first marriage. For example, suppose a
written notice for the promise of a gift is issued, dated, and
signed, but put in a desk. Within 30 days of the issuance, the
bequeathing spouse passes away and the surviving spouse states
he or she did not get notice. She wondered if requiring
notarization would ensure that the surviving spouse is aware of
the gift such that both spouses must sign. She expressed concern
that the language in Amendment 4, "The person's spouse may waive
the notice in writing," could be interpreted to mean the spouse
could sign it after his or her spouse dies because she did not
receive any written notice.
2:31:06 PM
CHAIR COGHILL suggested that her questions are related to trusts
in general. Amendment 4 relates to a promise of a gift that must
be in writing and be signed by the person making the trust. The
language being deleted by the amendment to Amendment 4 is
intended to make sure that people affected by the trust will
receive notice, especially the person's spouse.
2:31:33 PM
SENATOR MICCICHE asked if there is a standard legal requirement
for the term "written notice."
2:32:00 PM
MR. DELMAN deferred the question to Ms. O'Connor.
2:32:24 PM
MS. O'CONNOR agreed that written notice is a formal term. She
recalled that AS 13.36.100 covered it, but her colleagues could
verify the statute. She reported that written notice for trust
proceedings are provided via the U.S. Postal Service, FedEx, and
United Parcel Service (UPS).
CHAIR COGHILL said the [amendment to Amendment 4] that is before
the committee [would delete the language], "The person's spouse
may waive the notice in writing." He asked if that could be
gamed, such that a person could be given a written notice that
wasn't sent to the proper address, or through duress or
misunderstanding the person did not understand the implication
of the notice.
MS. O'CONNOR answered that the notice could be gamed by a person
committing fraud, just as with any other legal document. She
explained that duress and undue influence apply to wills and
trusts and are a legal basis to invalidate any estate planning
document proven to be procured through fraud, duress, or undue
influence. This circumstance would not be any different.
She said requiring the document to be notarized could prevent
fraud but undue influence and duress in estate planning is
complex and can be a long standing issue in families, so it
cannot be prevented in statute. Instead, people must prove undue
influence occurred and undo the document.
MS. O'CONNOR explained that the reason for the express language
to waive the notice is because it could be burdensome for the
family to wait 30 days. She suggested that the waiver could be
removed if members are uncomfortable with it, or reduced to
perhaps 20 days. She acknowledged that 30 days was an arbitrary
number in the first place.
2:37:39 PM
CHAIR COGHILL suggested that members might need more
information.
2:37:52 PM
SENATOR MICCICHE referred to AS 13.36.100, which is trust law
and covers serving a report. He said how it is received is
covered in AS 13.06.120, but it does not go beyond written
notice to mention signing or anything more elaborate. Thus, the
written notice in Amendment 4 seems consistent with other trust
law.
2:38:55 PM
CHAIR COGHILL explained the intent of Amendment 4 is that when a
person makes a promise to transfer to a trust under AS
13.36.305, the new Alaska Gift Trust, the spouse would be given
written notice, in part, in case of estrangement or tension.
However, if none exists, the spouse could waive the notice in
writing. He asked the sponsor of the amendment to Amendment 4 if
that satisfied her question.
2:39:37 PM
SENATOR REINBOLD said she didn't have an issue with Amendment 4.
Her concern is to ensure that spouses are notified and consent
[to the promise of a gift]. She suggested that the entire trust
law should be tightened up and have more bookends.
CHAIR COGHILL said adding the language to allow the spouse to
waive the notice in writing would provide a means to show the
spouse was informed and in agreement. He suggested that taking
out the language could create ambiguity.
SENATOR REINBOLD asked if "in writing" could be a text or an
email and how one would identify the author. The person's spouse
may have access to passwords to his or her accounts. She
expressed concern that Amendment 4 might create some loopholes.
2:42:23 PM
SENATOR MICCICHE said he would be satisfied if the last sentence
provided acknowledgement for notification or waiving the notice
in writing. He suggested it could read, "The person's spouse
must acknowledge notification or waive the notice in writing."
That would provide notification either way.
CHAIR COGHILL interjected that there is language in Section 4 on
page 5, lines 19-20, which reads, "(2) the promise is in
writing, signed by the person, and delivered to the trustee of
the trust; ?" He explained that the [grantor/settlor] of the
trust must qualify, promise to make the gift in writing, sign
the document, and deliver it the trustee of the trust. He
suggested language, "The person's spouse may waive the notice in
writing, signed by the person, and delivered to ?" is to ensure
that it is actually acknowledged and delivered. He offered to
work on the language because he understood the concern that the
notice might be glossed over in some way.
2:44:30 PM
SENATOR HUGHES referred to page 5, line 19, which goes back to
the concern she raised earlier about the husband in a second
marriage giving $10 million to children from his first marriage.
The husband would sign the promise, but the second spouse would
not. She said she heard Senator Reinbold mention consent. She
pointed out that receiving notice should not be confused with
consent, unless acknowledgement is a term that could be
construed as consent. The language in Amendment 4 does not ask
the non-bequeathing spouse to consent, just to make the spouse
aware that the promise of a gift has been issued.
CHAIR COGHILL suggested the committee review who can make a
trust and the reason the person has the authority to do so and
identify the beneficiaries of the trust. He directed his staff
to work with committee members on language to provide a
safeguard for the surviving spouse. He emphasized that a spouse
has every right to make a trust under the bill, but it is
important to make sure that those affected by it are [notified]
because the trust is an irrevocable trust.
2:46:21 PM
CHAIR COGHILL solicited a motion to withdraw the amendment to
Amendment 4. He suggested that the committee could review
revised language for Amendment 3 and Amendment 4 at a later
meeting.
2:46:34 PM
SENATOR REINBOLD answered yes.
[The committee treated her response as a motion to withdraw the
amendment to Amendment 4.]
2:46:38 PM
CHAIR COGHILL withdrew Amendment 4.
CHAIR COGHILL remarked that it is important for members to
understand the context in which the amendments are made and be
sure that the notice requirements are clear.
2:47:09 PM
SENATOR MICCICHE asked members to consider that the spouse may
not have any legal right to the asset if it is not community
property. He remarked that it is nice to provide notice, but as
the sponsor works on new language for Amendment 4, it is
important to be careful not to create a right.
2:47:41 PM
SENATOR REINBOLD envisioned that a single person could be making
a trust for their children, but some beneficiaries might be
adversely affected. She suggested that requiring the notice to
be notarized would provide an additional safeguard.
2:49:22 PM
KEVIN WALSH, Certified Public Accountant; Co-Owner, Walsh,
Kelliher & Sharp, Fairbanks, Alaska, voiced support for SB 191.
All of his clients have Alaskan roots. His firm routinely
discusses community property options with their clients, and
many hold a significant part of their assets as elected
community property. His firm has seen firsthand the benefits
that community property options provide to Alaskan families. In
addition, the trusts routinely include unique Alaska trust
features and if not, his firm recommends the trusts be fixed
using Alaska's very modern trust laws. He offered his view that
the legislature's prior work in allowing community property and
unique Alaska trust provisions has benefited and will continue
to benefit members' constituents and his firm's clients, who are
Alaskans. SB 191 will improve the tools for Alaskans and others.
He commented that he was impressed by the manner of the
discussion today and the deference to the comments and concerns
of others.
2:51:45 PM
CHAIR COGHILL stated that committee work allows for a broad
latitude of discussion. He said it is important to ask how the
[Alaska Gift Trust] works and what can be done to improve it.
2:52:29 PM
CHAIR COGHILL stated that he would hold SB 191 in committee.
| Document Name | Date/Time | Subjects |
|---|---|---|
| Fiscal Note SB 8-DPS-CJISP2.28.20.pdf |
SJUD 3/4/2020 1:30:00 PM |
SB 8 |
| SB 191 Amendment A.1 3.3.2020.pdf |
SJUD 3/4/2020 1:30:00 PM |
SB 191 |
| SB 191 Amendment A.2 3.3.2020.pdf |
SJUD 3/4/2020 1:30:00 PM |
SB 191 |
| SB 191 Amendment A.5 3.3.2020.pdf |
SJUD 3/4/2020 1:30:00 PM |
SB 191 |
| SB 191 Amendment A.6 3.3.2020.pdf |
SJUD 3/4/2020 1:30:00 PM |
SB 191 |
| SB 8 Sectional Analysis 2.25.2020.pdf |
SJUD 3/4/2020 1:30:00 PM |
SB 8 |
| SB 8 Sponsor Statement 2.25.2020.pdf |
SJUD 3/4/2020 1:30:00 PM |
SB 8 |
| SB 8 Ver A 2.25.2020.pdf |
SJUD 3/4/2020 1:30:00 PM |
SB 8 |
| SB 8 Supporting Document - State Marijuana Criminal Record Confidentiality Actions 2.25.2020.pdf |
SJUD 3/4/2020 1:30:00 PM |
SB 8 |
| SB 8 Updated Supporting Document - Leg Research Report 3.4.2020.pdf |
SJUD 3/4/2020 1:30:00 PM |
SB 8 |