Legislature(1999 - 2000)

03/06/2000 01:56 PM JUD

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
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                   SB 163-TRUSTS AND TRUSTEES                                                                                   
                                                                                                                                
CHAIRMAN TAYLOR asked if SB 163 effects the ability of a                                                                        
beneficiary from finding out about their interest.                                                                              
                                                                                                                                
MR. DOUGLAS BLATTMACHR, Alaska Trust Company, explained that SB 163                                                             
allows the settlor to decide if they would like to limit notice to                                                              
beneficiaries who are not entitled to a distribution or who have                                                                
not received a distribution for a period of time no longer than                                                                 
[indisc] after their death or after becoming incapacitated.  This                                                               
was done because a number of people who are setting up trusts are                                                               
doing them early in time because of the special advantages they                                                                 
provide, and they do not want their young children to know they are                                                             
a beneficiary of trust.                                                                                                         
                                                                                                                                
MR. BLATTMACHR commented Alaska is unique in that it requires the                                                               
trustee to notify beneficiaries when a trust is set up.  This bill                                                              
still provides the notification requirement if the grantor or                                                                   
settlor does not ask to hold off for a period of time.  After the                                                               
settlor dies or becomes incapacitated, the trustee has to notify                                                                
the beneficiaries.  Beneficiaries have to be notified if they                                                                   
receive a distribution or are entitled to a distribution.  This                                                                 
bill is only for a beneficiary not receiving a distribution or not                                                              
currently receiving a distribution.                                                                                             
                                                                                                                                
CHAIRMAN TAYLOR asked where in the bill is it provided that the                                                                 
limiting factor is disability or death of the grantor or principal                                                              
of the trust and what is the trigger for notification?                                                                          
                                                                                                                                
MR. BLATTMACHR stated in section 1, subsection (b) the language                                                                 
says:  The exemption may not exceed in duration the shorter of the                                                              
settlor's lifetime or a judicial determination of the settlor's                                                                 
incapacity.  This gives the settlor some privacy while letting him                                                              
take advantage of the tax laws and benefits.                                                                                    
                                                                                                                                
CHAIRMAN TAYLOR asked if there is anything else in the legislation                                                              
that precludes notification to a vested beneficiary.                                                                            
                                                                                                                                
MR. BLATTMACHR responded no, if a person is a vested beneficiary                                                                
receiving distributions or is entitled to a mandatory distribution                                                              
of income on an annual basis, they have to be notified.                                                                         
                                                                                                                                
Number 1439                                                                                                                     
                                                                                                                                
SENATOR DONLEY asked Mr. Blattmachr to elaborate on his last                                                                    
response commenting that even if an individual is not entitled to                                                               
an annual distribution or guaranteed a final distribution, if the                                                               
settlor dies or there is a judicial determination of incapacity--                                                               
notice is required.                                                                                                             
                                                                                                                                
MR. BLATTMACHR responded yes, even if the grantor said "don't                                                                   
notify my beneficiaries," if a beneficiary received a distribution                                                              
or if the trust said a distribution had to be made on an annual                                                                 
basis, the beneficiary would still have to be notified at that                                                                  
time.                                                                                                                           
                                                                                                                                
SENATOR DONLEY stated his concern is that once the settlor's                                                                    
lifetime has ended or there is a judicial determination of the                                                                  
settlor's incapacity, that even if the settlor specifically asked                                                               
that the beneficiary not be notified, the law still requires the                                                                
beneficiary be notified.                                                                                                        
                                                                                                                                
MR. BLATTMACHR responded that is correct.                                                                                       
                                                                                                                                
CHAIRMAN TAYLOR clarified further that even if the document says to                                                             
never notify the beneficiary, even after they are dead, the                                                                     
beneficiary will still be notified.                                                                                             
                                                                                                                                
MR. BLATTMACHR said they are bound by the original statute to                                                                   
notify beneficiaries.  No notification can only be granted during                                                               
the lifetime of the grantor, notification is automatic after a                                                                  
death.                                                                                                                          
                                                                                                                                
SENATOR DONLEY asked for Mr. Blattmachr to elaborate on the rest of                                                             
the bill.                                                                                                                       
                                                                                                                                
Number 1275                                                                                                                     
                                                                                                                                
MR. BLATTMACHR indicated the bill allows for judicial modification                                                              
of trusts if the original intent of the trust cannot be                                                                         
accomplished or if tax laws change so they are able to either                                                                   
terminate or modify the document.  This allows the beneficiary to                                                               
go to court and say this trust no longer accomplishes the purpose                                                               
that was set forth or it does not accomplish the tax purpose                                                                    
because of a change in law, allowing the judge to either modify or                                                              
terminate the document.                                                                                                         
                                                                                                                                
MR. DICK THWAITES, Alaska Trust Company, stated there is one other                                                              
change in CSSB 163, section 2 that says, or by a written document                                                               
after the trust is created, that some people in the trust industry                                                              
are concerned about.  Individuals that are appointed as trustees                                                                
for their "good friend" very often do not know of the requirement                                                               
to notify the trustees.  It is thought that a written document,                                                                 
after the trust is created, should be sufficient notice to defer                                                                
the notification requirement until death or legal determination of                                                              
incapacity so that when the grantor dies, whether or not there is                                                               
a determination or notice, the corporate trustee must notify the                                                                
beneficiaries of their present or future interest.                                                                              
                                                                                                                                
CHAIRMAN TAYLOR asked if this is just to confirm the requirement                                                                
for existing trusts.                                                                                                            
                                                                                                                                
MR. THWAITES responded yes, the language was added because it is                                                                
thought to be an oversight.  It is suspected that more than half of                                                             
the trusts in Alaska exist with non-professional trustees who are                                                               
not notifying beneficiaries--this needs to be clarified.                                                                        
                                                                                                                                
CHAIRMAN TAYLOR noted the clarification is that someone will notify                                                             
people at some point.                                                                                                           
                                                                                                                                
MR THWAITES stated it permits the person creating the trust to have                                                             
protection while leaving the basic statute in tact, which is that                                                               
notification must be given in all cases except where this specific                                                              
limited circumstance arises.                                                                                                    
                                                                                                                                
Number 1121                                                                                                                     
                                                                                                                                
SENATOR DONLEY expressed his concern with the language in section                                                               
2 that reads:  or by a written document after the trust is created,                                                             
relieve the trustee from the duty to provide notification or                                                                    
information to a beneficiary in accordance with AS 13.36.080(b).                                                                
                                                                                                                                
MR. THWAITES stated that AS 13.36.080(b) is limited to the                                                                      
trustor's lifetime or his judicial incompetency.                                                                                
                                                                                                                                
SENATOR DONLEY noted that the language in AS 13.36.080(b), in                                                                   
accordance, could be interpreted as relief from the requirements of                                                             
notification.  The language should clearly state that a person has                                                              
to comply with the requirements.                                                                                                
                                                                                                                                
CHAIRMAN TAYLOR suggested the words in accordance with should be                                                                
replaced with subject to.                                                                                                       
                                                                                                                                
SENATOR DONLEY moved to replace the wording in section 2, line 12,                                                              
in accordance with to subject to.  There being no objection, the                                                                
motion carried.                                                                                                                 
                                                                                                                                
                                                                                                                                
SENATOR DONLEY moved CSSB 163 as amended from committee with                                                                    
individual recommendations.  There being no objections, the motion                                                              
carried.                                                                                                                        

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