Legislature(2017 - 2018)BELTZ 105 (TSBldg)

02/21/2018 01:30 PM JUDICIARY

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Moved SB 151 Out of Committee
-- Public Testimony --
Heard & Held
-- Public Testimony --
        HB 208-TRUSTS; COMM PROP TRUSTS; POWERS OF APPT                                                                     
2:07:16 PM                                                                                                                    
CHAIR COGHILL announced the consideration of HB 208.                                                                            
2:08:56 PM                                                                                                                    
ANDREW EVENS, Staff, Representative  DeLena Johnson, Alaska State                                                               
Legislature, Juneau,  Alaska, recapped that the  Alaska Trust Act                                                               
passed in  1997, broadening the  flexibility of  managing trusts.                                                               
At that  time Alaska  was among the  top three  jurisdictions for                                                               
placing trusts,  but it  has since slipped  to number  eight. The                                                               
primary purpose  of the bill is  to restore Alaska to  its former                                                               
position  as  a  premiere  situs  for  trusts.  HB  208  updates,                                                               
clarifies,  and  increases the  flexibility  of  trust law  while                                                               
maintaining the current protections.                                                                                            
He listed the  things HB 208 does for Alaska.  First, it promotes                                                               
increased investment  in Alaska  and opportunities for  growth in                                                               
the  financial services  sector. Second,  it expands  an industry                                                               
that  is  not  natural  resource  dependent  by  attracting  non-                                                               
resident  trust  business.  Third, trust  administration  creates                                                               
higher paying  jobs for accountants,  attorneys, and  other trust                                                               
professionals.  Finally,  it  is revenue  positive.  Registration                                                               
fees and  life insurance premium  taxes from trusts  are expected                                                               
to bring in between $7 million and $12 million annually.                                                                        
2:12:16 PM                                                                                                                    
BETH  CHAPMAN, Attorney,  Faulkner Banfield  PC, Juneau,  Alaska,                                                               
stated that  she has practiced in  the trust and estates  area of                                                               
law for the past 30 years.  She said HB 208 modernizes provisions                                                               
in Title 13 (the Uniform  Probate Code (UPC)) and clarifies areas                                                               
where questions have arisen. She  opined that this bill continues                                                               
to improve the law and decreases the potential for litigation.                                                                  
CHAIR  COGHILL  asked  Mr.  Evans to  go  through  the  sectional                                                               
analysis  focusing  on  the  changes, the  section  in  which  it                                                               
appears, and the reason for the change.                                                                                         
MR. EVANS provided the following sectional review of HB 208.                                                                    
Section 1  adds new subsections  (b) through (f) to  AS 13.12.704                                                               
to clarify the powers of appointment.                                                                                           
     Subsection (b) states that a  power of appointment will                                                                    
     be considered  to be  held as  a nonfiduciary  power of                                                                    
     appointment  unless  granted  to  a  trustee  or  other                                                                    
     fiduciary as a trustee or other fiduciary.                                                                                 
He deferred to Ms. Chapman for explanation.                                                                                     
MS. CHAPMAN  explained that a  power of appointment might  give a                                                               
beneficiary the right to decide who  gets the assets when a trust                                                               
ends. This subsection clarifies that  this is an individual right                                                               
that is not subject to review  by the court or anybody else. This                                                               
protects beneficiaries and avoids disputes going forward.                                                                       
2:15:56 PM                                                                                                                    
SENATOR WIELECHOWSKI joined the committee.                                                                                      
MR.  EVANS  said  Section  2  amends  AS  13.36.109  relating  to                                                               
specific powers of trustees. It gives  a trustee the power to buy                                                               
liability insurance to protect  the trustee against beneficiaries                                                               
of the trust.                                                                                                                   
CHAIR COGHILL  observed that the  largest change appears  on page                                                               
4, lines 4-5.                                                                                                                   
MS.  CHAPMAN  said this  clarifies  that  when trustees  purchase                                                               
insurance for  the trust it  can include liability  insurance for                                                               
the trustee for claims brought by beneficiaries.                                                                                
MR. EVANS read:                                                                                                                 
     Section 3 adds a  subsection to AS 13.36.109 (trustee's                                                                    
     specific powers).  Allows a  trustee to  charge against                                                                    
     trust property  the cost incurred to  perform an action                                                                    
     authorized by (a) of the section.                                                                                          
This essentially allows the trust  to pay for activities that are                                                               
necessary to the trust.                                                                                                         
He  said Sections  4-22 relate  to the  increased flexibility  of                                                               
2:18:35 PM                                                                                                                    
SENATOR  WIELECHOWSKI referenced  the communication  from Shaftel                                                               
Law Offices,  P.C. that  expressed concern with  HB 208.  He read                                                               
the following that Mr. Shaftel articulated about Section 4.                                                                     
     Under the  bill, an  unlimited authorized  trustee (who                                                                    
     may  just  be  an  individual  who is  a  friend  of  a                                                                    
     beneficiary) can appoint an  existing trust's assets to                                                                    
     a  new  trust  just  for the  benefit  of  one  current                                                                    
     beneficiary,   and   for    the   benefit   of   future                                                                    
     beneficiaries  who are  not even  beneficiaries of  the                                                                    
     invaded trust (see Section 4 of the bill).                                                                                 
CHAIR COGHILL asked Mr. Shaftel to speak to his concerns.                                                                       
2:20:05 PM                                                                                                                    
DAVID   G.  SHAFTEL,   Attorney,  Shaftel   Law  Offices,   P.C.,                                                               
Anchorage,  Alaska, stated  that he  has been  practicing in  the                                                               
estate planning area of law since the  1980s and is a member of a                                                               
group of  attorneys and trust  officers who have worked  with the                                                               
legislature to improve  Alaska's trust and estate  laws since the                                                               
late 1990s.  He participated in  drafting the  existing decanting                                                               
provision  and  is opposed  to  those  provisions  in HB  208  as                                                               
currently drafted.                                                                                                              
He  said  decanting   is  a  useful  tool   for  modifying  trust                                                               
provisions, but it must strike  a balance between allowing needed                                                               
changes and  protecting the settlors' intent.  He maintained that                                                               
the  current  draft  of  the  proposed  decanting  provisions  is                                                               
significantly  out   of  balance  and  does   not  have  adequate                                                               
safeguards. He  warned that these  provisions would apply  to all                                                               
trusts that now exist in Alaska.                                                                                                
MR. SHAFTEL  said the key  premise in HB  208 is that  very broad                                                               
new powers  are given to  any trustee who is  not a settlor  or a                                                               
beneficiary of the  trust. If a manipulating  beneficiary can get                                                               
a  friendly trustee  appointed,  then this  friendly trustee  can                                                               
really do  just about anything  to the dispositive  provisions of                                                               
the trust. He provided a hypothetical  example of a wife with two                                                               
children from  a prior marriage.  She leaves her assets  in trust                                                               
for her  new husband, and  at his death the  assets are to  go to                                                               
her  two children.  The husband  names  a friend  as trustee  and                                                               
under  HB 208  the trustee  can direct  that after  the husband's                                                               
death the  wife's assets go  to his  children, not hers.  He said                                                               
this can be done under Section 4 of the bill.                                                                                   
He provided a second hypothetical  example where a couple created                                                               
wills and  a trust for the  benefit of their three  children. The                                                               
couple gave  the trustee directions  to hold the assets  in trust                                                               
until a  certain age  but to make  distributions according  to an                                                               
ascertainable  standard for  health, education,  maintenance, and                                                               
support.  If one  child  is  manipulative and  has  the power  to                                                               
change trustees  and he names  a friend who will  accommodate his                                                               
wishes. Under HB  208, that trustee then can  change the standard                                                               
for  health,  education,  maintenance,  and  support  to  one  of                                                               
absolute  discretion and  distribute assets  as he/she  sees fit.                                                               
The  trustee  could give  the  manipulative  child the  power  to                                                               
appoint the assets to anyone, not necessarily a family member.                                                                  
He provided  a third  hypothetical example  that applies  to both                                                               
irrevocable and revocable  trusts. A person is  using a revocable                                                               
trust  instead of  a will  as the  center piece  of their  estate                                                               
planning and  they become incapacitated. The  trustee can appoint                                                               
a friendly  trustee who  can change  the whole  dispositive plan,                                                               
even though the person who created the will is still alive.                                                                     
MR. SHAFTEL maintained  that under HB 208, a person  who wants to                                                               
manipulate a trust to change  the dispositive plan, simply has to                                                               
get a friendly trustee appointed.  Many existing trusts in Alaska                                                               
have a child  or spouse named as trustee and  they have the right                                                               
to name  a successor. As long  as the trustee is  not the settlor                                                               
or beneficiary,  that trustee has  very broad powers.  Section 20                                                               
of  HB  208  provides  that  only one  beneficiary  needs  to  be                                                               
notified  if a  trust is  decanted. Further,  the fiduciary  duty                                                               
under HB 208 is limited to  the best interest of one beneficiary.                                                               
Section 14  of the bill  eliminates language which refers  to and                                                               
asks for consideration of the settlor's intent.                                                                                 
MR.  SHAFTEL advised  that he  submitted a  memo and  attached an                                                               
email exchange  he had  with the Reporter  for the  Uniform Trust                                                               
Decanting Act. She  was commenting on the Senate  companion to HB
408  and was  very  critical  of it  for  the reasons  previously                                                               
mentioned.  He  also pointed  out  that  the  bill has  not  been                                                               
reviewed  and approved  by the  Alaska  Bar Association's  Estate                                                               
Planning Section.                                                                                                               
MR. SHAFTEL summarized that the  decanting provisions are not yet                                                               
ready to be enacted until  safeguards are added. Notice should be                                                               
given  to  all  beneficiaries  when changes  are  made,  and  the                                                               
fiduciary duty should  be broadened so that the  trustee has duty                                                               
to all the  beneficiaries. The fiduciary duties  should be stated                                                               
in  the bill  so  that  someone who  accepts  this  role will  be                                                               
advised  as to  their responsibilities.  Finally, there  are some                                                               
confusing  and  ambiguous provisions  in  Section  7 and  Section                                                               
2:31:45 PM                                                                                                                    
CHAIR COGHILL  asked Mr. Evans who  would like to respond  to Mr.                                                               
Shaftel's testimony.                                                                                                            
MR. EVANS suggested Ms. Chapman respond.                                                                                        
2:32:40 PM                                                                                                                    
MS. CHAPMAN  said Section  4 addresses the  exercise of  power of                                                               
appointment by an  authorized trustee, which is  a power trustees                                                               
have  under  existing law.  Right  now,  a  trustee who  has  the                                                               
discretion  could  distribute  principal  from  a  trust  to  one                                                               
beneficiary  or they  could distribute  it equally.  What HB  208                                                               
does is  clarify that a trustee  who has the discretion  can take                                                               
the assets  from a  trust and  put them  in a  new trust  for the                                                               
current  and  future  benefit  of  one or  more  of  the  current                                                               
beneficiaries and to  the exclusion of the others.  This has been                                                               
the law. What  the bill changes is that  future beneficiaries may                                                               
by added. This is not unusual.                                                                                                  
MS.  CHAPMAN said  the  protections  in this  bill  are that  the                                                               
assets remain within a legal  entity and the trustee continues to                                                               
be  liable to  all  the beneficiaries  until  he/she provides  an                                                               
accounting  of his/her  actions. She  described the  concern that                                                               
notice  of a  distribution to  a  new trust  may be  to just  one                                                               
beneficiary as unfounded.                                                                                                       
MS. CHAPMAN  said she finds that  HB 208 balances the  ability to                                                               
be flexible  to respond to changed  circumstances with protecting                                                               
beneficiaries. She  hasn't seen  a case of  abuse of  the current                                                               
statute and  her firm uses  it frequently. In  many circumstances                                                               
it's to  help families protect their  children, particularly when                                                               
they have  a substance abuse  problem, for example.  Instead, the                                                               
assets can  be put  into a  trust that  continues to  protect the                                                               
assets. She said the bill is  drafted to strike a balance and all                                                               
the points of view have been considered.                                                                                        
CHAIR COGHILL asked how the Uniform Law factored in this change.                                                                
MS. CHAPMAN clarified that this is  not based on the Uniform Law.                                                               
Alaska  passed  the  decanting  statute  many  years  before  the                                                               
Uniform  Law  came  into  existence. She  said  the  question  of                                                               
whether the Uniform Law is  too restrictive or if it's protective                                                               
can't  be answered  because people  have different  opinions. She                                                               
opined that having some notice  requirements and always holding a                                                               
trustee liable  until every qualified beneficiary  has been given                                                               
an  accounting is  the most  protective way  to move  forward and                                                               
allow for flexibility.                                                                                                          
SENATOR  WIELECHOWSKI asked  if  the Alaska  Bar Association  has                                                               
weighed in on the bill.                                                                                                         
MS.  CHAPMAN said  she  didn't know  the  Alaska Bar  Association                                                               
policy on weighing  in on legislation. She said she  has a lot of                                                               
respect for  Mr. Shaftel,  but they disagree  on this  point. She                                                               
has  used this  law many  times  and it  has always  been to  the                                                               
benefit of  families moving forward  without going to  court. She                                                               
described the bill as very balanced.                                                                                            
CHAIR COGHILL asked Ms. O'Connor to provide her testify.                                                                        
2:42:40 PM                                                                                                                    
ABIGAIL  O'CONNOR, Attorney,  Holland  &  Knight LLP,  Anchorage,                                                               
Alaska, said  she testified on  HB 208  several days ago  and was                                                               
reiterating  her support  today. She  said her  perspective as  a                                                               
trust  and estates  attorney  who practices  in  both Alaska  and                                                               
Florida  is that  Florida's decanting  statute is  so restrictive                                                               
it's  not  used very  often.  If  a  Florida  trust needs  to  be                                                               
decanted,  it is  easier, although  more expensive,  to move  the                                                               
situs to Alaska. She agreed  with Ms. Chapman that Alaska already                                                               
has  statutory safeguards  regarding trust  decanting and  opined                                                               
that someone  who wants to be  nefarious with a trust  will do it                                                               
regardless  of  the statute.  It's  a  problem, but  current  law                                                               
provides  that  a trustee  can  appoint  all  the assets  to  one                                                               
beneficiary  and the  other beneficiaries  won't  find out  until                                                               
they receive  an accounting.  "I don't  know that  we can  have a                                                               
statute  that  prevents  every  bad  actor  from  creating  every                                                               
conceivable kind of bad act."                                                                                                   
2:46:41 PM                                                                                                                    
CHAIR COGHILL held HB 208 in committee.                                                                                         

Document Name Date/Time Subjects
HB 208 - Written Testimony - Shaftel.pdf SJUD 2/21/2018 1:30:00 PM
HB 208