Legislature(2007 - 2008)BELTZ 211

02/21/2008 01:30 PM Senate LABOR & COMMERCE


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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ HB 196 HANDLING MATTERS AFTER A PERSON'S DEATH TELECONFERENCED
Heard & Held
+ HJR 16 OPPOSING MILK TAX TELECONFERENCED
Heard & Held
Bills Previously Heard/Scheduled
+= SB 153 PEACE OFFICERS/FIRE FIGHTER RETIREMENT TELECONFERENCED
Moved SB 153 Out of Committee
+= SB 209 EXTEND ALASKA COMMISSION ON AGING TELECONFERENCED
Moved SB 209 Out of Committee
     CSHB 196(JUD)-HANDLING MATTERS AFTER A PERSON'S DEATH                                                                  
                                                                                                                                
CHAIR ELLIS announced CSHB 196(JUD) to be up for consideration.                                                                 
                                                                                                                                
1:53:51 PM                                                                                                                    
REPRESENTATIVE JAY RAMRAS,  sponsor of HB 196,  testified that it                                                               
discourages beneficiaries  in a will from  contesting elements of                                                               
the  document; it  also addresses  proceeds  from life  insurance                                                               
policies.                                                                                                                       
                                                                                                                                
1:56:08 PM                                                                                                                    
JANE PIERSON,  staff to Representative  Ramras, said  the purpose                                                               
of  HB  196 is  to  make  the  will  process as  streamlined  and                                                               
efficient as  possible. It works  hand in  hand with some  of the                                                               
provisions  in trusts  and that  was really  the impetus  of this                                                               
bill.                                                                                                                           
                                                                                                                                
CHAIR ELLIS asked if it originated from trust attorneys.                                                                        
                                                                                                                                
MS. PEARSON replied yes.                                                                                                        
                                                                                                                                
SENATOR BUNDE asked if the bill  wants to prevent someone who has                                                               
a legitimate claim from contesting a trust.                                                                                     
                                                                                                                                
MS. PIERSON  answered that provisions  in case law  address undue                                                               
influence in  a will. This bill  would apply if your  last wishes                                                               
were  being questioned.  Sometimes a  protest will  be used  as a                                                               
bargaining chip to get a monetary settlement in litigation.                                                                     
                                                                                                                                
1:58:55 PM                                                                                                                    
SENATOR BUNDE asked if this  would prevent an investor from being                                                               
named in a  life insurance contract to protect  his investment if                                                               
the entrepreneur was somehow removed from the scene.                                                                            
                                                                                                                                
REPRESENTATIVE RAMRAS  responded that  the concept  Senator Bunde                                                               
was referring  to is called  "key man" insurance coverage  and he                                                               
had those same reservations last  year. He deferred those answers                                                               
to  professionals  in  the  field  because as  a  lay  person  he                                                               
couldn't see the logic.                                                                                                         
                                                                                                                                
2:01:03 PM                                                                                                                    
MS.  PIERSON  clarified that  AS  13.33.101  lays out  that  life                                                               
insurance  contracts  and  retirement plans  are  protected  from                                                               
claims and creditors.                                                                                                           
                                                                                                                                
SENATOR BUNDE said  he thought an answer is that  if you have key                                                               
man insurance, those people are  named in the insurance. So, this                                                               
would not prevent them from having a claim.                                                                                     
                                                                                                                                
MS. PIERSON answered yes.                                                                                                       
                                                                                                                                
2:02:14 PM                                                                                                                    
ROBERT  MANLEY, Estate  Planning  Attorney representing  himself,                                                               
said he is  part of an informal group of  estate planning lawyers                                                               
who have  been working to keep  Alaska law on trusts  current and                                                               
working well so  Alaskans can have their wishes  carried out with                                                               
a minimum  of expense and  tax costs. While other  legislation in                                                               
recent years  has come before them  has been designed in  part to                                                               
attract trusts from  other jurisdictions, HB 196  is primarily of                                                               
local  interest.   It  has  been   circulated  through   the  bar                                                               
association and it has broad support. `                                                                                         
                                                                                                                                
MR.  MANLEY  said  Section  1  deals  with  no  contest  clauses;                                                               
Sections 2 and 3 deal  with probate waiver affidavits and section                                                               
4  deals  with  beneficiary   designations  for  life  insurance,                                                               
qualified plans, IRAs and the like.                                                                                             
                                                                                                                                
He said he wanted to speak  to section 1 and allow his colleagues                                                               
to  speak to  the other  sections;  he said  this section  simply                                                               
brings  Alaska  law governing  wills  into  conformity with  laws                                                               
governing revocable  trusts. Revocable  trusts and wills  are the                                                               
two primary vehicles  that people use for  estate planning. There                                                               
are various  reasons for selecting  one over the  other including                                                               
privacy,  avoidance  of  probate  in  multiple  jurisdictions  or                                                               
avoidance of the extra expense of funding a revocable trust.                                                                    
                                                                                                                                
MR. MANLEY  said that Alaska  trust law provides that  no contest                                                               
clauses are effective; the laws  governing wills say that contest                                                               
clauses are not  effective if the challenger  has probable cause.                                                               
The contest clause  is the provision used if  a beneficiary under                                                               
a  will or  trust challenges  the dispositions  someone wants  to                                                               
make. Some  people will challenge a  will not because there  is a                                                               
good reason for  doing it, but because they are  trying to extort                                                               
some kind of  settlement on the basis of the  cost of litigation;                                                               
often they are  successful. This puts wills on the  same plane as                                                               
trusts in preventing that kind of thing.                                                                                        
                                                                                                                                
MR.  MANLEY stated  there  is  a valid  challenge  if the  person                                                               
making the  instrument didn't have  testamentary capacity  or was                                                               
unduly  influenced,  and  then  a  court  could  invalidate  that                                                               
instrument  and the  no  contest  clause is  of  no effect.  More                                                               
importantly, he  said, if  you totally  disinherit somebody  a no                                                               
contest clause doesn't work at  all because the person is risking                                                               
nothing. So,  it only  applies in situations  where one  child is                                                               
being favored over the other.  This legislation will allow people                                                               
to  exercise their  own judgment  over disposition  of their  own                                                               
money rather than have ongoing litigation in the future.                                                                        
                                                                                                                                
2:07:26 PM                                                                                                                    
Section 4(f) on page 3, line  21, specifically does not limit the                                                               
right of  the owner of  a policy to  pledge or assign  a contract                                                               
for  collateral for  debts. So  it doesn't  interfere in  any way                                                               
with  the ability  for creditors  to  protect themselves  through                                                               
life insurance.  It clarifies in Alaska  law that you can  name a                                                               
trust as  well as  an individual and  have that  disposition free                                                               
from the claims of general predators of the deceased.                                                                           
                                                                                                                                
CHAIR ELLIS asked if he knew of any opposition to this bill.                                                                    
                                                                                                                                
MR. MANLEY replied he didn't know of any opposition.                                                                            
                                                                                                                                
2:08:44 PM                                                                                                                    
RODNEY KLEEDEHN, representing himself,  supported HB 196 and said                                                               
he would  comment on the  part of  Section 4 that  addresses life                                                               
insurance proceeds payable to a  beneficiary upon the death of an                                                               
insured  and  also  that addresses  retirement  account  proceeds                                                               
payable to a beneficiary upon the  death of the account owner. He                                                               
explained that  life insurance proceeds payable  to an individual                                                               
or to an irrevocable trust are  not subject to claims made by the                                                               
insureds'  creditors. This  is  true in  the  case of  retirement                                                               
account  proceeds  payable to  an  individual  or an  irrevocable                                                               
trust.  However,  proceeds  payable  to  a  revocable  trust  are                                                               
subject to  such claims. This  is the  form of trust  most widely                                                               
used by Alaskans.                                                                                                               
                                                                                                                                
The  problem is  that the  ability  of creditors  to reach  these                                                               
proceeds discourages use of revocable  trusts, which provide much                                                               
needed  management  for  immature beneficiaries  and  others  who                                                               
can't manage money for one reason  or another. His concern is for                                                               
the  18-year  old who  is  legally  an adult  getting  unfettered                                                               
control of life insurance proceeds  because a parent chose not to                                                               
run  the  creditor  risk  of  using a  revocable  trust.  If  the                                                               
proceeds  had gone  to the  trust, management  could be  provided                                                               
indefinitely or  to a suitable  age for the individual  to assume                                                               
responsibility  for  financial  affairs.   He  was  aware  of  no                                                               
opposition whatsoever; the consensus is it's a good idea.                                                                       
                                                                                                                                
2:11:19 PM                                                                                                                    
DOUGLAS BLATTMACHER,  President, Alaska Trust  Company, supported                                                               
HB 196.  He said it  would improve  Alaska's trust laws  and make                                                               
the administration of estates and trusts simpler.                                                                               
                                                                                                                                
CHAIR  ELLIS asked  him  to describe  what  Alaska Trust  Company                                                               
does.                                                                                                                           
                                                                                                                                
MR.  BLATTMACHER replied  it is  a stand-alone  trust institution                                                               
similar  to the  bank's  trust  department, but  all  they do  is                                                               
provide  trust,  fiduciary  and  investment  management  services                                                               
primarily to individuals,  but to some institutions,  as well. He                                                               
has nine  employees and  about 1,000  trust accounts  mostly from                                                               
outside of Alaska. It started in 1996.                                                                                          
                                                                                                                                
CHAIR  ELLIS asked  if  it was  fair  to say  the  growth of  his                                                               
company was  due in part to  changes the state has  made over the                                                               
years in trust law in Alaska.                                                                                                   
                                                                                                                                
MR. BLATTMACHER replied  yes; he added that  trust departments in                                                               
other  banks have  also received  additional business  along with                                                               
insurance writers, stock brokers and attorneys.                                                                                 
                                                                                                                                
2:13:21 PM                                                                                                                    
STEVE  GREER,  Estate  Planning Attorney,  representing  himself,                                                               
Anchorage supported  HB 196  and spoke  to Sections  2 and  3. He                                                               
explained that  they proposed bringing the  threshold limit where                                                               
probate  can be  avoided up  to a  more reasonable  amount. These                                                               
sections were meant to allow heirs  to avoid the legal expense of                                                               
a probate proceeding.                                                                                                           
                                                                                                                                
Current statutes say  that the decedent can only  avoid the legal                                                               
expense  of a  probate  proceeding if  the  decedent dies  owning                                                               
$15,000 or less  of personal property that has been  on the books                                                               
since the early 80s. This  bill raises that threshold to $25,000,                                                               
a number  that has tracked  the consumer price index  (CPI) since                                                               
the early  80s. Cars  are a problem  and are  treated separately.                                                               
Because no  one really knows  what a car  is worth when  a spouse                                                               
dies,  and when  title  does  not list  the  surviving spouse  as                                                               
"and/or" or "or",  the spouse would have to go  through a probate                                                               
proceedings to get the car transferred  to her if it exceeded the                                                               
value of  $15,000. This bill  raises the threshold for  the value                                                               
of  cars to  a more  reasonable amount  of $100,000  because most                                                               
families have more than one car.                                                                                                
                                                                                                                                
MR. GREER said it should be  noted that virtually all states have                                                               
a  similar statute  only differing  only in  the amount  in which                                                               
probate proceeding is not necessary.  For example, Washington has                                                               
a  statute which  states  the formal  probate  proceeding is  not                                                               
necessary if  a decedent's probatable  estate is worth  less than                                                               
$100,000; Oregon has  a statute that says  $200,000. He concluded                                                               
that this bill represents a  compromise between those individuals                                                               
who  want to  avoid probate  as  opposed to  those attorneys  who                                                               
typically use the  probate process to get assets  from a decedent                                                               
to the heirs. It really is  a consumer protection bill because it                                                               
makes it more  possible for a decedent dying with  a small estate                                                               
to avoid  the expense that would  be the case under  current law.                                                               
He  had heard  of  no objections  to this  bill;  rather that  it                                                               
provided good changes.                                                                                                          
                                                                                                                                
SENATOR  BUNDE  asked  why  increase the  value  of  vehicles  to                                                               
$100,000,  but leave  the  other  property or  cash  to a  modest                                                               
increase of $25,000.                                                                                                            
                                                                                                                                
2:18:48 PM                                                                                                                    
MR. GREER  answered it's the case  with any bill when  you set an                                                               
arbitrary amount whether  it be $25,000 or  $100,000, people have                                                               
different thoughts. One thought is  if someone died with $100,000                                                               
in a bank account, there's too  much room for fraud. He explained                                                               
that  the  affidavit procedure  wherein  probate  can be  avoided                                                               
simply states that a  successor can go to a bank  and the bank is                                                               
obligated to  pay that money to  him. However if someone  else is                                                               
entitled  to receive  that money  pursuant  to the  terms of  the                                                               
decedent's will,  that individual  can still go  to court  and go                                                               
through the probate process. A  property limit over $25,000 would                                                               
encourage abuse  of this section,  but that  is not the  case for                                                               
automobiles.                                                                                                                    
                                                                                                                                
SENATOR BUNDE asked  if it's possible that people  who do probate                                                               
work would  lose the  opportunity to  do some  work if  the limit                                                               
were raised to $100,000.                                                                                                        
                                                                                                                                
MR. GREER replied  yes, but an attorney's duty is  to his client,                                                               
not his pocketbook.                                                                                                             
                                                                                                                                
REPRESENTATIVE  RAMRAS wrapped  up that  no  one is  hurt by  the                                                               
changes  and  it is  helpful  to  the  process and  an  important                                                               
housekeeping measure for Alaska.                                                                                                
                                                                                                                                
2:22:19 PM                                                                                                                    
SENATOR BUNDE  said when  the bill  comes up  again he  wanted to                                                               
know  what it  would cost  to go  through probate  for $25,000  -                                                               
because he understands  it would cost them  a significant portion                                                               
of the  $25,000 to recover the  $25,000 - especially when  he has                                                               
heard other states  are at $100,000 or $200,000  and vehicles are                                                               
$100,000. He wanted  to raise the limit to  $100,000 or something                                                               
higher  so the  cost of  probate  would not  eat up  most of  the                                                               
inheritance.                                                                                                                    
                                                                                                                                
REPRESENTATIVE RAMRAS said he shared those concerns.                                                                            
                                                                                                                                
CHAIR ELLIS said  the bill would be held for  further work. There                                                               
being  no  further business  to  come  before the  committee,  he                                                               
adjourned the meeting at 2:25:46 PM.                                                                                          

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