Legislature(2017 - 2018)BELTZ 105 (TSBldg)

02/19/2018 01:30 PM JUDICIARY

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Heard & Held
Heard & Held
        HB 208-TRUSTS; COMM PROP TRUSTS; POWERS OF APPT                                                                     
2:05:06 PM                                                                                                                    
CHAIR COGHILL announced the consideration of HB 208.                                                                            
REPRESENTATIVE DELENA JOHNSON,  Alaska State Legislature, Juneau,                                                               
Alaska,  sponsor   of  HB  208,  stated   that  this  legislation                                                               
increases the flexibility of existing  trust law. It will restore                                                               
Alaska  to its  place  as an  attractive  trust environment.  She                                                               
relinquished further introduction to Mr. Evans.                                                                                 
2:06:23 PM                                                                                                                    
At ease                                                                                                                         
2:11:02 PM                                                                                                                    
CHAIR COGHILL  reconvened the  meeting and  invited Mr.  Evans to                                                               
2:11:48 PM                                                                                                                    
ANDREW EVANS, Staff, Representative  DeLena Johnson, Alaska State                                                               
Legislature, Juneau, Alaska,  introduced HB 208 on  behalf of the                                                               
sponsor. He  explained that Alaska  transitioned to a  top choice                                                               
for the placement of trusts with  the passage of the Alaska Trust                                                               
Act in  1997. This  law effectively  eliminated the  rule against                                                               
perpetuities and  allowed the protection of  trust assets against                                                               
creditors of the beneficiary. The  fact that Alaska has no income                                                               
tax was another benefit.                                                                                                        
The trust market has evolved since  then and states like New York                                                               
and Nevada have passed legislation  that expand the flexibilities                                                               
available to trusts.  Alaska's ranking of being in  the top three                                                               
for  housing trusts  has  fallen  to number  eight.  HB 208  will                                                               
update, clarify,  and increase flexibility in  trust regulations,                                                               
while maintaining existing protections.                                                                                         
MR. EVANS stated that HB  208 will promote investment in Alaska's                                                               
economy and  opportunities for growth  in the  financial services                                                               
sector.  It   will  expand  a  non-natural   resource  extraction                                                               
industry by attracting nonresident  trusts and create high-paying                                                               
jobs.  It  will  also  provide   revenue  to  the  state  through                                                               
registration  fees and  life insurance  premium taxes.  These are                                                               
expected  to  bring  in  between   $7  million  and  $12  million                                                               
2:14:11 PM                                                                                                                    
MR. EVANS  advised that HB  208 expands the flexibility  of trust                                                               
law in  four areas. These are  1) decanting of trusts;  2) powers                                                               
of appointment;  3) traceability of assets;  and 4) clarification                                                               
of trustees' specific powers.                                                                                                   
He deferred to Mr. Hompesch to discuss the four areas in detail.                                                                
2:15:02 PM                                                                                                                    
RICHARD HOMPESCH, Attorney, Hompesch  Evans & Averett, Fairbanks,                                                               
Alaska, explained that  trusts are decanted by  taking the assets                                                               
from one  trust and placing them  in a second trust  that is more                                                               
appropriate  for the  current  circumstance.  Because Alaska  law                                                               
allows a  trust to continue for  one thousand years, what  may be                                                               
appropriate  now may  not be  appropriate in  future years.  If a                                                               
trustee  can distribute  the assets  from one  trust to  another,                                                               
that  provides a  lot  of options  to  satisfy the  beneficiaries                                                               
going forward.                                                                                                                  
The changes  to the  decanting statutes proposed  in HB  208 make                                                               
the  system  more  efficient  and   clarify  points  that  raised                                                               
questions under old law. HB  208 clarifies that the beneficiaries                                                               
may  waive  the 30-day  notice  requirement,  that at  least  one                                                               
beneficiary  must  be  notified,  and that  the  trustee  may  be                                                               
authorized to  exercise a  power without  noticing beneficiaries.                                                               
He said this is  important for settlors who may want  to set up a                                                               
silent trust.                                                                                                                   
2:19:32 PM                                                                                                                    
MR. HOMPESCH explained  that the power of  appointment relates to                                                               
a  person who  has  the power  to distribute  or  give assets  to                                                               
another person. HB 208 provides  that a non-fiduciary who has the                                                               
power  of appointment,  that is  someone that  is not  a trustee,                                                               
cannot  be  compelled  to  exercise  that power  in  favor  of  a                                                               
creditor of the person holding the power.                                                                                       
2:20:52 PM                                                                                                                    
At ease for technical difficulties.                                                                                             
2:23:10 PM                                                                                                                    
CHAIR COGHILL  reconvened the meeting  and asked Mr.  Hompesch to                                                               
MR. HOMPESCH advised that Section  2 allows the trustee to insure                                                               
property  of the  trust  against damage  or  loss and  themselves                                                               
against  liability from  third persons  or  beneficiaries of  the                                                               
MR.   HOMPESCH   discussed   the   following   points   regarding                                                               
traceability of assets under HB 208.                                                                                            
   · Assets entering the trust may be documented as to their                                                                    
     origin, pre-trust ownership or percentage of ownership                                                                     
     prior to being placed into the trust.                                                                                      
   · In the event of divorce, beneficiary conflicts, or other                                                                   
     such events, the assets of the trust are traceable back to                                                                 
     the point they entered the trust.                                                                                          
   · Tracing of origin will allow retention of certain tax                                                                      
     benefits even after one of the settlors expires.                                                                           
2:25:07 PM                                                                                                                    
SENATOR  COSTELLO asked  what Alaskans  are involved  with trusts                                                               
and who in Alaska will benefit when the bill passes.                                                                            
MR. HOMPESCH said many Alaskans  want their assets held in trusts                                                               
for the benefit of their  children and other descendants. This is                                                               
helpful in  the circumstance of  divorce because the assets  in a                                                               
trust  are not  subject to  division upon  divorce. He  said he's                                                               
surprised at  the number of  working Alaskans who  are interested                                                               
in trusts  and a lot  of wealthy  families from elsewhere  in the                                                               
U.S. have decided  to form their trusts under  Alaska law because                                                               
the law  is more  flexible. "As Delaware  is to  corporations, we                                                               
wanted Alaska  to be  as trusts  and I  think we've  succeeded in                                                               
large part."                                                                                                                    
SENATOR  COSTELLO  asked  if  Alaskans  who  have  children  with                                                               
special needs  access trusts to  ensure their children  are taken                                                               
care of once they're gone.                                                                                                      
MR.  HOMPESCH  confirmed  that  a  special  needs  trust  can  be                                                               
created, or a  trust can be decanted to a  special needs trust if                                                               
the need arises.                                                                                                                
SENATOR  COSTELLO asked  if the  trust  must have  some nexus  to                                                               
MR. HOMPESCH  said yes; at  least one of  the trustees must  be a                                                               
state resident  and some of  the administration must  occur here.                                                               
However, neither  the beneficiaries  nor the settlor  is required                                                               
to be a resident of Alaska.                                                                                                     
CHAIR  COGHILL  asked the  typical  circumstances  under which  a                                                               
trust is decanted.                                                                                                              
MR. HOMPESCH said a trust formed  under the laws of another state                                                               
may be  imported and  registered under Alaska  law and  an Alaska                                                               
trustee is appointed. The trustees  then have the power to decant                                                               
under  Alaska  statutes. Any  forum  shopping  that occurs  takes                                                               
place before decanting.                                                                                                         
CHAIR COGHILL asked if HB 208  will attract new trust business or                                                               
make   it  easier   for  Alaska   trusts  to   move  to   another                                                               
MR. HOMPESCH  said his experience  is that trusts that  are moved                                                               
to Alaska and  decanted under Alaska law remain in  Alaska and HB
208 furthers that goal.                                                                                                         
CHAIR COGHILL asked  how HB 208 changes  the insurance provisions                                                               
under Alaska trust law.                                                                                                         
MR. HOMPESCH  explained that AS  13.36.109 expands the  powers of                                                               
the  trustee to  include insuring  the trustee  against liability                                                               
with respect to beneficiaries of the trust.                                                                                     
CHAIR COGHILL asked for an  explanation of traceability of assets                                                               
as it relates to division of ownership.                                                                                         
MR.  HOMPESCH explained  that Section  23 of  HB 208  adds a  new                                                               
provision that allows a trustee to  divide a trust for income tax                                                               
purposes. Unless specifically prohibited,  a trustee who has kept                                                               
records tracing contributions to  the trust by different settlors                                                               
may divide  the trust such  that the specific settlor  is treated                                                               
as the sole settlor of those contributions.                                                                                     
2:36:56 PM                                                                                                                    
CHAIR COGHILL opened public testimony on HB 208.                                                                                
2:37:36 PM                                                                                                                    
ABIGAIL  O'CONNOR, Attorney,  Holland  &  Knight LLP,  Anchorage,                                                               
Alaska, stated  that she  is also licensed  and practices  law in                                                               
Florida. She  agreed with Mr.  Hompesch that HB 208  creates more                                                               
flexibility  and  opportunities,  particularly  for  decanting  a                                                               
trust. She  provided an example  to illustrate that  changing the                                                               
situs of a trust to Alaska  makes planning easier for the settlor                                                               
and is  beneficial to Alaska.  She also agreed with  Mr. Hompesch                                                               
that  the  goal  of  the   legislation  is  to  enhance  Alaska's                                                               
desirability as a place to create or move and maintain a trust.                                                                 
2:40:22 PM                                                                                                                    
MATTHEW BLATTMACHR, Vice President  and Trust Officer, Peak Trust                                                               
Company,  Anchorage,  Alaska,  stated  that  many  in  the  trust                                                               
community  believe HB  208 will  further Alaska's  position as  a                                                               
premier  jurisdiction for  both Alaskans  and non-Alaskans  to do                                                               
their planning. It's good Alaska.                                                                                               
2:41:21 PM                                                                                                                    
DOUGLAS  BLATTMACHR,  President  and  CEO,  Peak  Trust  Company,                                                               
Anchorage, Alaska,  referenced an earlier comment  about location                                                               
of  assets and  explained that  one of  the requirements  is that                                                               
some of the  assets must be in Alaska. He  shared that Peak Trust                                                               
has  about $80  million in  trust  assets on  deposit with  local                                                               
banks  which  provides more  money  for  the  banks to  lend  and                                                               
circulate  in   the  economy.  This  legislation   will  be  very                                                               
beneficial to Alaskans and Alaska.                                                                                              
MR.  HOMPESCH  listed  additional financial  benefits  to  Alaska                                                               
including  premium taxes  on life  insurance and  fees associated                                                               
with forming LLCs related to trusts.                                                                                            
2:45:50 PM                                                                                                                    
CHAIR COGHILL held HB 208 in committee.                                                                                         

Document Name Date/Time Subjects
SB 151 - Sponsor Statement.pdf SJUD 2/19/2018 1:30:00 PM
SB 151
SB 151 - Supporting Case Filing Data.pdf SJUD 2/19/2018 1:30:00 PM
SB 151
HB 208 - Sectional Summary.pdf SJUD 2/19/2018 1:30:00 PM
HB 208
HB 208 - Sponsor Statement.pdf SJUD 2/19/2018 1:30:00 PM
HB 208
HB 208 - Supporting Document.pdf SJUD 2/19/2018 1:30:00 PM
HB 208
HB 208 - Presentation.pdf SJUD 2/19/2018 1:30:00 PM
HB 208