Legislature(2017 - 2018)BELTZ 105 (TSBldg)
01/30/2018 01:00 PM LABOR & COMMERCE
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HB 208-TRUSTS; COMM PROP TRUSTS; POWERS OF APPT 1:30:06 PM CHAIR COSTELLO announced the consideration of HB 208. She reminded members that the committee heard the Senate version of the bill last session. 1:30:31 PM At ease 1:34:08 PM CHAIR COSTELLO reconvened the meeting and invited Representative Johnson to present HB 208. 1:34:29 PM REPRESENTATIVE DELENA JOHNSON, Alaska State Legislature, Juneau, Alaska, sponsor of HB 208, stated that this legislation amends trust law by making it more responsive to current market conditions. Should it pass, Alaska will return to its premiere position of being among the best jurisdictions in the country to hold trusts. This legislation will create jobs and help diversify the economy. 1:36:15 PM ANDREW EVENS, Staff, Representative DeLena Johnson, Alaska State Legislature, Juneau, Alaska, introduced HB 208 speaking to the following sponsor statement: Alaska has always sought be a leader in adopting laws to improve estate and tax planning options for Alaskans as well as non-resident trust holders. As a result, by 1998 Alaska ranked among the top three favorable environments to place trusts. Since the end of the 1990s however, states such as Nevada, New York, South Dakota, and others have passed newer laws expanding the flexibilities available to trusts. As a result, Alaska is now trailing much of the nation in evolving our trust related statutes to meet current market realities and demands. According to a leading index, Alaska's ranking has fallen to eighth place as an increasing number of states become superior trust-favorable environments. This bill seeks to reverse this trend by updating and increasing flexibility in trust-related regulation, while maintaining the protections already codified in existing statutes. This bill will stimulate increased investment in our economy through the creation of more opportunities for Alaskan banks, trust companies, and other financial institutions. It will help to create higher paying jobs in the financial services sector. It will help to diversify Alaska's economy by expanding an industry that is not 'resource economy' dependent, and it will add a source of fee-based income for state government. House Bill 208 will bring Alaska trust related law into the 21st century, restore the state's ranking among trust-friendly states, stimulate stable economic growth and employment, and bring in additional state revenue. I respectfully ask for your support of House Bill 208. 1:40:47 PM SENATOR GARDNER asked if the trust professionals are required to be Alaska residents. MR. EVENS deferred the question to Mr. Blattmachr. 1:41:16 PM MATHEW BLATTMACHR, Vice President, Peak Trust Company, Anchorage, Alaska, explained that to be deemed a valid Alaska trust some administration must occur within the state and the trust must have a resident Alaskan trustee. The drafting attorney does not have to be a resident, but it is advisable that the trust is "blessed by Alaska counsel." Likewise, an accountant for a trust is not required to reside or operate in Alaska. MR. BLATTMACHR added that most of the provisions in the bill simply clarify and enhance the flexibility of existing statute. He cited the changes to the decanting statute as an example. Alaska passed its decanting statute 20 years ago and several states have more modern decanting laws. HB 208 seeks to update the statute and put Alaska back on par. CHAIR COSTELLO asked for an explanation of decanting. MR. BLATTMACHR explained that decanting in the trust industry is similar to decanting wine. It is the gradual pouring of the contents of one container into another vehicle. In the trust context, the assets stay the same, but the container is changed. Decanting is a process that might be used to make a change when there is a scrivener's error in an irrevocable trust document, when there is an unexpected tax law change, or when there is a substantial change in beneficiary circumstances. SENATOR MEYER asked if a nonresident who doesn't have assets in Alaska can set up an Alaska trust. 1:44:29 PM MR. BLATTMACHR answered no; one of the safe harbor provisions is that some of the assets of the trust must be in Alaska. SENATOR MEYER asked if an Alaskan resident could engage an Alaskan attorney to place both their Alaska assets and their Washington state assets in a single trust. MR. BLATTMACHR said yes, but he and other trust professionals would recommend engaging an attorney who is either licensed in both states or who works with an organization that has the capability to offer advice on the laws of both states. SENATOR MEYER commented that hiring an attorney in each state would be an additional expense. MR. BLATTMACHR agreed and added that individuals have been willing to pay that cost, so they can accomplish the planning under Alaska's flexible trust laws. SENATOR MICCICHE asked if the taxable value of the trust is the ultimate value to the state. MR. BLATTMACHR answered yes. SENATOR MICCICHE observed that the bill primarily deals with powers of appointment. He asked if other issues have made Alaska trust law less competitive. MR. BLATTMACHR clarified that the decanting statute is the greatest factor for Alaska being a less competitive trust landscape. Powers of appointment is a smaller piece that clarifies when those powers are triggered. SENATOR MICCICHE asked if he agrees that the benefits of a trust vary depending on the individual. MR. BLATTMACHR agreed that the best trust jurisdiction depends on the planning scenario. 1:49:15 PM CHAIR COSTELLO opened public testimony on HB 208. 1:49:41 PM ABIGAIL O'CONNOR, representing self, Anchorage, Alaska, said she is a trust and estate attorney testifying in support of HB 208. She referenced the question about trust decanting and explained that this is a very important feature to "fix" a broken trust without going to court. Many states have greatly expanded their rules on perpetuity which means that trusts can exist longer than estate planning attorneys can envision in terms of the interests of the beneficiaries. Decanting allows the assets from the current trust to be placed in a new trust. She cited an example of a trust with mandatory distributions that are no longer appropriate because the beneficiary is disabled and needs protection. The decanting provision in HB 208 will make Alaska a more flexible jurisdiction and may bring more trust business to the state. 1:53:32 PM JONATHAN BLATTMACHR, representing self, Long Island, New York, stated that he was the original drafter of the Alaska Trust Act that passed in 1997, and he wrote the first decanting statute in the nation. It was for New York and the second was for Alaska. He said his goal has been to make Alaska the premier financial capital in the country. He agreed with Mr. Evens that Alaska has seen tremendous competition from other jurisdictions. He opined that HB 208 will help return Alaska to the front of the line thereby attracting more business and bringing in new revenue. 1:55:23 PM DOUGLAS BLATTMACHR, President and CEO, Peak Trust Company, Anchorage, Alaska, stated wholehearted support for HB 208. It is advantageous for Alaskans and the state. 1:56:01 PM RICH HOMPESCH, representing self, Fairbanks, Alaska, stated that he is an attorney in private practice and would like to respond to earlier questions related to HB 208. Senator Meyer asked how assets from other states end up in an Alaska trust. He said his experience is that the nonresident client forms an Alaska limited liability company (LLC), transfers the assets to that LLC, and then transfers the membership interest in the LLC to the Alaska trust. The state benefits because those entities pay a $250 fee to form an LLC and a $100 biannual tax. He added that the decanting provision will be particularly valuable to trusts that Alaska attorneys prepared 25 years ago that need updating. 1:58:11 PM CHAIR COSTELLO closed public testimony on HB 208 and said she would look to the will of the committee. 1:58:23 PM SENATOR GARDNER asked what proportion of Alaskans use Alaska trusts. She posited that only a handful of people are following the bill. DOUGLAS BLATTMACHR said Peak Trust Company sees a fair number of Alaskans who use this type of planning, and they aren't necessarily high net worth individuals. He noted that trust planning is also used for special needs beneficiaries. SENATOR MEYER asked if there is any protection of assets that the settlor neglected to add to or include to the trust. DOUGLAS BLATTMACHR said an asset purchased in an individual's name would not have the protection of the trust. However, the individual could transfer the asset to the LLC and have it placed inside the trust. SENATOR MICCICHE asked him to clarify that individuals may have different trusts for different purposes and they may choose to hold certain assets outside the trust. MR. BLATTMACHR confirmed that individuals may have more than one trust and that it's not necessarily an all or none scenario. CHAIR COSTELLO found no further questions and solicited a motion. 2:02:23 PM SENATOR MICCICHE moved to report HB 208 from committee with individual recommendations and attached fiscal note(s). 2:02:38 PM CHAIR COSTELLO found no objection and stated that HB 208 moves from the Senate Labor and Commerce Standing Committee.