Legislature(2017 - 2018)BELTZ 105 (TSBldg)

04/19/2018 09:00 AM JUDICIARY

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
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Heard & Held
Moved CSSB 81(HSS) Out of Committee
Heard & Held
-- Public Testimony --
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
        HB 208-TRUSTS; COMM PROP TRUSTS; POWERS OF APPT                                                                     
9:29:41 AM                                                                                                                    
CHAIR COGHILL  announced the consideration  of HB 208  and stated                                                               
that the  purpose today  was to take  public testimony.  He asked                                                               
the sponsor if she wanted to provide opening comments.                                                                          
9:30:31 AM                                                                                                                    
REPRESENTATIVE DELENA JOHNSON,  Alaska State Legislature, Juneau,                                                               
Alaska, sponsor of HB 208,  thanked the committee for hearing the                                                               
bill.  She  said  the  more   questions  she  answers,  the  more                                                               
convinced  she becomes  that this  is a  good bill.  It brings  a                                                               
significant amount  of money  into the  state without  costs. She                                                               
directed attention to  the handout that has  good explanations of                                                               
decanting and fiduciary responsibility.                                                                                         
9:32:28 AM                                                                                                                    
CHAIR COGHILL opened public testimony on HB 208.                                                                                
9:33:00 AM                                                                                                                    
DAVE  G.  SHAFTEL, representing  self,  Shaftel  Law Offices  PC,                                                               
Anchorage, Alaska,  said he  has been practicing  in the  area of                                                               
trusts  and estate  law since  the  late 1970s.  He advised  that                                                               
since the  bill was  heard last, members  of the  Estate Planning                                                               
Section  of the  Alaska  Bar Association  have  said either  they                                                               
oppose the proposed decanting provisions  of HB 208 or they would                                                               
like  the  Estate  Planning Section  to  thoroughly  review  them                                                               
before any  changes are made.  Another major  concern articulated                                                               
in the responses  is that the bill grants the  trustee very broad                                                               
powers  to change  the dispositive  intent after  the person  who                                                               
made  the  trust  dies  or  becomes  incapacitated.  He  provided                                                               
examples to demonstrate that this could lead to abuse.                                                                          
MR. SHAFTEL  said HB 208  also raises some very  basic procedural                                                               
fairness concerns. For  example, a trustee who  decides to modify                                                               
where  the property  is  going only  has to  give  notice to  one                                                               
beneficiary.  Furthermore, the  bill says  that the  trustee only                                                               
has  a  fiduciary  duty  to  one  beneficiary.  That  is  totally                                                               
inappropriate because  trustees should  have a fiduciary  duty to                                                               
all beneficiaries.                                                                                                              
9:40:14 AM                                                                                                                    
RICHARD HOMPESCH, attorney  representing self, Fairbanks, Alaska,                                                               
stated that  he strongly disagrees with  Mr. Shaftel's testimony.                                                               
He pointed out that all beneficiaries  of a trust are entitled to                                                               
an  accounting under  AS 13.36.080  and any  decanting should  be                                                               
included in  that accounting.  Since 2013,  the law  has required                                                               
notice of  decanting to  the settlor if  living, the  persons who                                                               
have  the power  to  remove  the trustee  who  is exercising  the                                                               
decanting power,  and a  qualified beneficiary.  HB 208  does not                                                               
substantively  change that  rule. It  does change  the phrase  "a                                                               
qualified beneficiary" to "at least one qualified beneficiary."                                                                 
MR. HOMPESCH said  he believes that a trustee who  wants to abuse                                                               
the settlor's  intent has  ample opportunity to  do so  by making                                                               
outright  distributions,   perhaps  contrary  to   the  settlor's                                                               
intent, instead  of using decanting.  Notice is not  required for                                                               
an outright  distribution and if  other beneficiaries  review the                                                               
accounting  and   think  it  was  outside   the  standard,  those                                                               
resources are gone and there may  not be much recourse other than                                                               
to sue the  trustee. By contrast, if a  beneficiary later objects                                                               
to a  decanting, the  money is  still available;  they can  go to                                                               
court and ask that the monies  be returned to the original trust.                                                               
Thus, the objections to HB 208 are unfounded, he said.                                                                          
9:45:33 AM                                                                                                                    
MATT BLATTMACHR,  Vice President, Peak Trust  Company, Anchorage,                                                               
Alaska, stated  that Peak Trust  Company supports HB 208  but not                                                               
the proposed  amendments. They may  have unintended  and negative                                                               
consequences. The bill  has been four years in the  making due to                                                               
its  complexity and  the desire  to get  the statute  just right.                                                               
Peak  Trust  Company believes  that  the  concerns of  those  who                                                               
oppose HB 208  have been considered and  properly addressed under                                                               
other  Alaska statutes  or  federal law,  even  if not  expressly                                                               
stated in  the bill. Further,  Alaska statutes require  a trustee                                                               
to  discover  and make  effective  the  dispositive intent  of  a                                                               
grantor whether  under a will  or trust. That cannot  be changed.                                                               
Additionally, a trustee has a  duty to all beneficiaries. This is                                                               
an  unchangeable right  and  the  language in  HB  208 cannot  be                                                               
interpreted to say  otherwise. He urged the committee  to pass HB
9:48:07 AM                                                                                                                    
BHREE  ROUMAGOUX,  Attorney,   Shaftel  Law  Offices,  Anchorage,                                                               
Alaska, said  she has  worked in estate  planning, is  a trustee,                                                               
and a  beneficiary. She  said the decanting  statute needs  to be                                                               
updated and  it would not be  difficult to get to  something that                                                               
protects all  parties and gives  trustees the  flexibility that's                                                               
required  due  to  changes  in  tax  laws  and  changes  in  life                                                               
situations.  The statute  should also  allow people  to do  it in                                                               
ways that  are not as costly  as going to court  for modification                                                               
of  an irrevocable  trust.  She also  opined  that the  fiduciary                                                               
standard in  the proposed AS  13.36.158(e) should be  modified so                                                               
it applies  to all  beneficiaries. The  current language  in that                                                               
subsection should not be passed.                                                                                                
9:51:07 AM                                                                                                                    
SUSAN BEHIKE  FOLEY, President, University of  Alaska Foundation,                                                               
and  Chief Development  Officer,  UA  System, Anchorage,  Alaska,                                                               
related that before  she moved to the university,  she spent much                                                               
of  her  professional  career  as a  trust  and  estate  planning                                                               
attorney in Alaska.  She stated that the University  of Alaska is                                                               
concerned  about  the  effect  HB 208  could  have  on  donations                                                               
Alaskans make to  the university upon their  deaths. Their donors                                                               
are primarily  average Alaskans who  prepare documents  for their                                                               
estates  believing that  their wishes  will be  honored. Ensuring                                                               
that  will happen  is the  university's concern.  Because planned                                                               
gifts to  the university are  a vital  source of revenue  for the                                                               
university, they  have been actively  working to improve  HB 208.                                                               
They  have   honed  their  recommendations  to   three  suggested                                                               
        • Clarify the trustee's fiduciary duties.                                                                               
        • Protect gifts   to   charities   like   the   UA                                                                      
          Foundation, that are not claimed as deductions                                                                        
          for tax purposes.                                                                                                     
        • Require notice of decanting to charities to                                                                           
          ensure organizations like the UA Foundation are                                                                       
          not left out of the loop.                                                                                             
Without  these  changes,  the  University  of  Alaska  Foundation                                                               
cannot support HB 208, she said.                                                                                                
9:54:04 AM                                                                                                                    
BETH CHAPMAN, Attorney, Juneau, Alaska,  stated that she has been                                                               
a  trust and  estates attorney  for 30  years and  was intimately                                                               
involved  in  drafting  HB  208 and  she  supports  the  original                                                               
version.  It  fulfills  the settlor's  intent  and  continues  to                                                               
provide  the protections  to beneficiaries  in  existing law.  It                                                               
will give  trustees more  flexibility to  make changes  to trusts                                                               
instead  of  outright  distributions.  This  ultimately  protects                                                               
She  opined that  the proposed  amendments, including  those from                                                               
the university, would not improve  the bill. She pointed out that                                                               
any charitable  gift for  which a  charitable deduction  has been                                                               
taken cannot be changed going forward.                                                                                          
9:55:34 AM                                                                                                                    
JAMIE  DELMAN,  Attorney,  Shaftel  Law  Offices  PC,  Anchorage,                                                               
Alaska, stated that he was strongly  opposed to HB 208 and wanted                                                               
to comment  on some of  the supporting testimony.  Mr. Blattmachr                                                               
and  Ms. Chapman  noted that  intent is  not jeopardized  by this                                                               
bill  but  Section  14  deletes  the  language  that  prevents  a                                                               
decanting if there  is substantial evidence of  a contrary intent                                                               
of the settlor. Ms. Chapman  also noted that charitable gifts for                                                               
which a  deduction has been  claimed would be protected  but many                                                               
Alaskans  make charitable  gifts  as  remainder beneficiaries  in                                                               
their trust documents  or they don't need  a charitable deduction                                                               
because they don't have over  $11 million in assets. Mr. Hompesch                                                               
also argued  that beneficiaries can  request an  accounting. This                                                               
is true if the beneficiary knows  they are a beneficiary but that                                                               
is  not always  the case.  It is  difficult to  imagine how  they                                                               
could  request  an  accounting  from  a  trust  they  don't  know                                                               
anything  about,  he  said.  The argument  that  the  assets  are                                                               
protected in a distribution in  further trust is unfounded in the                                                               
sense that  a beneficiary  could be completely  cut out  under HB
208 and know nothing about it  until years later when much of the                                                               
money may already have been spent.                                                                                              
He reiterated that he strongly opposes HB 208.                                                                                  
9:58:57 AM                                                                                                                    
ANNE  HELZER,  Attorney,  Anchorage,   Alaska,  stated  that  she                                                               
opposes HB  208 as currently  drafted. She advised that  over the                                                               
last eight  years she  has assisted hundreds  of Alaskans  in the                                                               
area of  estate and  trust planning and  she finds  it concerning                                                               
that she only  learned of this bill a month  ago. She pointed out                                                               
that abuse by  fiduciaries is neither an  unforeseeable event nor                                                               
is it  uncommon, especially  among the  elderly. She  opined that                                                               
the  decanting  of   a  trust  should  only   happen  in  limited                                                               
circumstances and  for very  good reasons.  Flexibility may  be a                                                               
good thing but checks and  balances are needed. Earlier testimony                                                               
that disputes could  be pursued in court  underestimates the cost                                                               
involved to  a beneficiary to  bring an  action in court.  It's a                                                               
David  and  Goliath  situation,   she  said  and  reiterated  her                                                               
opposition to HB 208 as currently drafted.                                                                                      
10:04:24 AM                                                                                                                   
ALEX SLIVKA,  Chair, University of Alaska  Foundation, Anchorage,                                                               
Alaska, said  he wanted to echo  the comments of Mr.  Shaftel and                                                               
Susan Foley.  He advised that  the University of  Alaska benefits                                                               
from a  large number  of planned gifts  amounting to  millions of                                                               
dollars that  benefit UA programs, students,  and campuses across                                                               
the state. In  these times of tight state funding,  this is a top                                                               
priority  for  the Foundation,  the  Board  of Regents,  and  the                                                               
university leadership, he said.                                                                                                 
He expressed  concern that the current  draft of HB 208  may have                                                               
unintended  consequences. He  urged  the committee  to adopt  the                                                               
changes Ms. Foley  described to help safeguard  the University of                                                               
Alaska Foundation and a crucial source of funding.                                                                              
10:05:48 AM                                                                                                                   
VANCE SANDERS,  Attorney, Juneau,  Alaska, said he  has practiced                                                               
in Alaska  since 1984 and  a significant portion of  his practice                                                               
is representing  disabled people. He  noted that the  statute Mr.                                                               
Hompesch referenced  that allows decanting has  been very helpful                                                               
in meeting the  changing requirements for SSI  benefits that many                                                               
of his  clients rely on. He  stated strong support for  HB 208 as                                                               
10:07:19 AM                                                                                                                   
ABIGAIL O'CONNER,  representing self, Anchorage Alaska,  said she                                                               
supports HB 208 without any  of the proposed amendments. However,                                                               
that does not  mean she and other supporters  wouldn't be willing                                                               
to work  with their colleagues  on further amendments.  It's that                                                               
the amendments  proposed so far  have issues She opined  that the                                                               
notice  requirement is  not a  change. The  language in  existing                                                               
statute says notice  is to be given to  "a qualified beneficiary"                                                               
and  the bill  clarifies that  to  say, "at  least one  qualified                                                               
beneficiary."  She  opined  that beneficiaries  are  entitled  to                                                               
notice   and  that   it's  reasonable   for   a  beneficiary   to                                                               
specifically request notice if a trust is ever decanted.                                                                        
She pointed  out that decanting  is in current statute  and there                                                               
are  existing  concerns over  abuse.  These  concerns should  not                                                               
stand  in  the  way  of enhancing  the  decanting  statutes.  The                                                               
flexibility  this  bill  proposes  will be  very  helpful.  If  a                                                               
trustee wants to  frustrate the settlor's intent, they  can do so                                                               
by distributing  all the assets  outright to one  beneficiary, by                                                               
improperly managing the money, or  by improperly investing. There                                                               
are  already remedies  for these  potential abuses  of trust  and                                                               
there would  be a  remedy for  this one  two. She  reiterated her                                                               
strong support for HB 208.                                                                                                      
10:10:17 AM                                                                                                                   
PAUL  KARLKAUFMAN  Attorney,   Shaftel  Law  Offices,  Anchorage,                                                               
Alaska, said  he practices estate planning  and charitable giving                                                               
and he  represents nonprofit organizations.  He is also  a member                                                               
of the Anchorage Library Foundation  Board and wanted to focus on                                                               
the  charitable  implications of  HB  208.  He advised  that  the                                                               
Alaska Chapter  of Fundraising Professionals  has asked  for more                                                               
time to consider  the effect of HB 208 because  they only learned                                                               
about it last month. If there  was a serious intention to ask for                                                               
the input  of stakeholders,  they should  have an  opportunity to                                                               
MR.  KARLKAUFMAN stated  opposition to  HB 208  and outlined  its                                                               
impact on Alaska charities.                                                                                                     
   • Section 4 gives a trustee authority to change the                                                                          
     charitable beneficiary despite contrary donor intent.                                                                      
   • Section 14 deletes the provision in existing law that                                                                      
     prohibits decanting  where there is substantial  evidence of                                                               
     the contrary intent of the donor.                                                                                          
   • A donor's intent is protected under Section 16 only if a                                                                   
     charitable  deduction  applies.  It   does  not  protect  an                                                               
     identified   charity.  Only   the  ultra-wealthy   would  be                                                               
     protected.  Even  if  a  charitable  deduction  is  claimed,                                                               
     Section  16 does  not prevent  a trustee  from changing  the                                                               
     charitable beneficiary.                                                                                                    
   • The lack of notice to all beneficiaries in Section 20 means                                                                
     an Alaska  charity will almost certainly  not receive notice                                                               
     if  it has  been  removed as  a  beneficiary. Charities  are                                                               
     often not  aware they  are a  beneficiary until  the trustee                                                               
     notifies them.                                                                                                             
MR.  KARLKAUFMAN concluded  that lack  of notice,  change in  the                                                               
fiduciary  standard,  removal of  the  requirement  to honor  the                                                               
donor's intent, minimal protection  of charitable deductions, and                                                               
the retroactive application of HB  208 all place Alaska charities                                                               
at risk.                                                                                                                        
10:13:59 AM                                                                                                                   
MICHAEL   CAVLALIERE,  Attorney,   Fairbanks,  Alaska,   said  he                                                               
supports the  original draft of HB  208. The changes made  to the                                                               
decanting statute  will allow flexibility  and give  trustees the                                                               
ability to  respond to changing circumstances  in a beneficiary's                                                               
life or changes  in the tax laws. The  decanting provision allows                                                               
these changes to  be made in a cost-effective manner.  He said he                                                               
understands the  concerns voiced  about abuse, but  trustees have                                                               
the duty to always act in  the best interest of the beneficiaries                                                               
and  that is  not being  changed  or eliminated.  Also, there  is                                                               
already ample  opportunity for abuse  under current laws  such as                                                               
outright  distributions to  one beneficiary  to the  exclusion of                                                               
the  others.  No  notice  is required  in  that  circumstance  He                                                               
reiterated his support for HB 208.                                                                                              
10:15:53 AM                                                                                                                   
CHAIR  COGHILL closed  public testimony  on HB  208 and  held the                                                               
bill  in committee.  He  noted that  he would  be  looking for  a                                                               
pathway forward.                                                                                                                

Document Name Date/Time Subjects
HB 123 - Explanation of changes (ver. O to ver. B).pdf SJUD 4/19/2018 9:00:00 AM
HB 123
HB 123 - Letters of Opposition.pdf SJUD 4/19/2018 9:00:00 AM
HB 123
HB 123 - Letter of Support - Fairbanks Chamber.pdf SJUD 4/19/2018 9:00:00 AM
HB 123
HB 123 - Letters of Support.pdf SJUD 4/19/2018 9:00:00 AM
HB 123
HB 123 - Sectional Analysis (ver. B).pdf SJUD 4/19/2018 9:00:00 AM
HB 123
HB 123 - Sponsor Statement.pdf SJUD 4/19/2018 9:00:00 AM
HB 123
HB 123 - Supporting Document - ADN Article.pdf SJUD 4/19/2018 9:00:00 AM
HB 123
HB 123 - Supporting Document - Health Care Price Transparency Laws.pdf SJUD 4/19/2018 9:00:00 AM
HB 123
HB 123 - Supporting Document - How Price Transparency Can Control the Cost of Health Care.pdf SJUD 4/19/2018 9:00:00 AM
HB 123