Legislature(1995 - 1996)
01/19/1996 01:05 PM House JUD
| Audio | Topic |
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE JUDICIARY STANDING COMMITTEE
January 19, 1996
1:05 P.M.
MEMBERS PRESENT
Representative Brian Porter, Chairman
Representative Joe Green, Vice Chairman
Representative Con Bunde
Representative Bettye Davis
Representative Al Vezey
Representative Cynthia Toohey
Representative David Finkelstein
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
HOUSE BILL NO. 379
"An Act authorizing establishment of alternative dispute resolution
centers to foster the resolution of disputes between juvenile
offenders and their victims."
- MOVED CSHB 379(JUD) OUT OF COMMITTEE
HOUSE BILL NO. 308
"An Act relating to the Uniform Probate Code, including non-probate
transfers, guardianships, trusts, and multiple-party accounts;
relating to the Uniform Simultaneous Death Act; amending Alaska
Rule of Probate Procedure 5; and providing for an effective date."
- MOVED CSHB 308(JUD) OUT OF COMMITTEE
HOUSE BILL NO. 154
"An Act requiring the Department of Law to provide guidelines
regarding unconstitutional state and municipal takings of private
real property; relating to the taxation of private real property
taken unconstitutionally by state or municipal action; establishing
a time limit for bringing an action for an unconstitutional state
or municipal taking of private real property; and providing for an
effective date."
- HEARD AND HELD
PREVIOUS ACTION
BILL: HB 379
SHORT TITLE: VICTIM/JUVENILE OFFENDER MEDIATION
SPONSOR(S): REPRESENTATIVE(S) PORTER, Green, Kelly
JRN-DATE JRN-PG ACTION
12/29/95 2365 (H) PREFILE RELEASED
01/08/96 2365 (H) READ THE FIRST TIME - REFERRAL(S)
01/08/96 2365 (H) JUDICIARY, FINANCE
01/17/96 (H) JUD AT 01:00 PM CAPITOL 120
01/17/96 (H) MINUTE(JUD)
01/19/96 (H) JUD AT 01:00 PM CAPITOL 120
BILL: HB 308
SHORT TITLE: UNIFORM PROBATE CODE REVISIONS
SPONSOR(S): REPRESENTATIVE(S) PARNELL
JRN-DATE JRN-PG ACTION
04/13/95 1318 (H) READ THE FIRST TIME - REFERRAL(S)
04/13/95 1318 (H) JUDICIARY
10/16/95 (H) JUD AT 09:00 AM JUNEAU LIO
01/19/96 (H) JUD AT 01:00 PM CAPITOL 120
BILL: HB 154
SHORT TITLE: REGULATORY TAKING OF PRIVATE PROPERTY
SPONSOR(S): REPRESENTATIVE(S) KOHRING, Rokeberg, Kott, Kelly,
Vezey, Martin, Barnes Ogan, G.Davis, James, Mulder
JRN-DATE JRN-PG ACTION
02/03/95 237 (H) READ THE FIRST TIME - REFERRAL(S)
02/03/95 237 (H) CRA, JUD, FIN
02/16/95 (H) CRA AT 1:00 PM CAPITOL 124
02/16/95 (H) MINUTE(CRA)
02/21/95 (H) CRA AT 1:00 PM CAPITOL 124
02/21/95 (H) MINUTE(CRA)
03/01/95 550 (H) COSPONSOR(S): ROKEBERG
03/09/95 (H) CRA AT 1:00 PM CAPITOL 124
03/09/95 (H) MINUTE(CRA)
03/16/95 (H) CRA AT 1:00 PM CAPITOL 124
03/16/95 (H) MINUTE(CRA)
03/24/95 919 (H) COSPONSOR(S): KOTT
03/25/95 (H) CRA AT 1:00 PM CAPITOL 124
03/25/95 (H) MINUTE(CRA)
04/20/95 (H) CRA AT 1:00 PM CAPITOL 124
04/20/95 (H) MINUTE(CRA)
04/21/95 1421 (H) CRA RPT CS(CRA) NT 1DP 1DNP 2NR 1AM
04/21/95 1421 (H) DP: VEZEY
04/21/95 1422 (H) DNP: ELTON
04/21/95 1422 (H) NR: AUSTERMAN, IVAN
04/21/95 1422 (H) AM: KOTT
04/21/95 1422 (H) INDETERMINATE FISCAL NOTE (LAW)
04/21/95 1422 (H) 2 FISCAL NOTES (DCRA, DNR)
11/21/95 (H) JUD AT 10:00 AM JUNEAU LIO
01/08/96 2382 (H) COSPONSOR(S): KELLY, VEZEY, MARTIN
01/09/96 2396 (H) COSPONSOR(S): BARNES
01/10/96 2404 (H) COSPONSOR(S): OGAN, G.DAVIS
01/11/96 2418 (H) COSPONSOR(S): JAMES, MULDER
01/19/96 (H) JUD AT 1:00 PM CAPITOL 120
01/19/96 (H) MINUTE(JUD)
WITNESS REGISTER
BOB MANLY, Esq.
324 East Cook
Anchorage, Alaska 99501
Telephone: (907) 263-8251
POSITION STATEMENT: Testified on HB 308.
BRUCE MOORE, Broker; and
Second Vice President of the State of
Alaska Association of Life Underwriters
2242 Arcadia
Anchorage, Alaska 99517
Telephone: (907) 279-9952
POSITION STATEMENT: Testified on HB 308.
PETER BRAUTIGAN, Esq.
2170 Belmont
Anchorage, Alaska 99517
Telephone: (907) 276-1592
POSITION STATEMENT: Testified on HB 308.
NANCY WALLACE
New York Life Insurance
51 Madison Avenue, Room 910
New York City, NY 10010
Telephone: (212) 576-4473
POSITION STATEMENT: Opposed HB 308.
RICHARD V. WELLMAN, Executive Director
Editorial Board
Uniform Probate Code
Athens, Georgia (ZIP)
Telephone: (706) 549-1718
POSITION STATEMENT: Testified on HB 308.
L.S. (JERRY) KURTZ, JR., Esq.
Alaska Commissioner
National Conference of Commissioners
on Uniform State Laws
1050 Beech Lane
Anchorage, Alaska 99501
Telephone: (907) 258-6051
POSITION STATEMENT: Testified on HB 308
TODD THACKER, Vice President
Governmental Affairs
Prudential Insurance Companies of America
P.O. Box 9220
Van Nuyes, California 91409
Telephone: (916) 447-8229
POSITION STATEMENT: Opposed HB 308
DAVID LIFER, Counsel
American Counsel of Life Insurance
1001 Pennsylvania Avenue, N.W.
WASHINGTON, D.C. 20004
Telephone: (202) 624-2017
POSITION STATEMENT: Opposed HB 308
DEBORAH RANDALL, Esq.
Alaska Bar Association
Probate & Estate Planning
8601 Pioneer Drive
Anchorage, Alaska 99504
Telephone: (907) 561-4420
POSITION STATEMENT: Testified on HB 308
ART PETERSON, Esq.
Alaska Uniform Law Commissioner
National Conference of Commissioners
on Uniform State Laws
Dillon & Findley, P.C.
350 North Franklin Street
Juneau, Alaska 99801
(907) 586-4000
POSITION STATEMENT: Testified on HB 308
REPRESENTATIVE VIC KOHRING
Alaska State Legislature
Capitol Building, Room 428
Juneau, Alaska 99801-1182
Telephone: (907) 465-2186
POSITION STATEMENT: Sponsor of HB 154
CRAIG TILLERY
Assistant Attorney General
Department of Law
1031 W 4th Avenue, Suite 200
Anchorage, Alaska 99501-1994
Telephone: (907) 269-5100
POSITION STATEMENT: Testified on HB 154
ACTION NARRATIVE
TAPE 96-3, SIDE A
Number 000
The House Judiciary Standing Committee was called to order at 1:05
p.m. Members present were Chairman Porter, Representatives B.
Davis, Vezey, Green, Bunde, and Toohey. Representative Finkelstein
was absent.
HB 379 - VICTIM/JUVENILE OFFENDER MEDIATION
The first order of business to come before the House Judiciary
Committee was HB 379.
CHAIRMAN BRIAN PORTER recognized the arrival of Representative
David Finkelstein.
CHAIRMAN PORTER recalled the dilemma in the confidentiality
mediation process and reporting results to various agencies such as
the Division of Family and Youth Services (DFYS). He referred the
committee to CS, version "k", page 5, number 7 which read, "For
communicating to the agency making the referral under this act or
the court making the referral under the act as appropriate the
following: (A) notice that the minor and victim have been unable
to enter into a written agreement....". He continued that (B)
addresses notice that the minor and victim have entered into a
written agreement; (C) speaks to notice that the minor has failed
to perform the obligations; and (D) is notice that it has been
successfully completed. That is the dispositional information that
DFYS was requesting. He stated DFYS was satisfied with the CS.
Number 259
REPRESENTATIVE JOE GREEN moved that version "k" of CSHB 379, dated
1/18/96 be adopted as the working document. There being no
objection, it was so ordered.
REPRESENTATIVE GREEN made a motion that CSHB 379(JUD) move from
committee. Hearing no objection, CSHB 379(JUD) was moved out of
the House Judiciary Committee with the attached fiscal note and
individual recommendations.
HB 308 - UNIFORM PROBATE CODE REVISIONS
Number 312
The next order of business to come before the House Judiciary
Committee was HB 308.
CHAIRMAN PORTER said HB 308 was discussed during the interim with
another bill. Chairman Porter recognized Representative Sean
Parnell.
Number 453
REPRESENTATIVE SEAN PARNELL introduced Bob Manly via teleconference
in Anchorage to present information on HB 308.
Number 579
CHAIRMAN PORTER announced there were no attorneys by profession on
the House Judiciary Committee. Therefore, he asked Mr. Manly to
clarify terms such as "augmented estates."
Number 610
BOB MANLY said Alaska has had the Uniform Probate Code since about
1976. Alaska adopted the 1969 version of the Uniform Act. He
pointed out the legislation before the committee was the first
major update to the Probate Code. Mostly, it decodifies (indisc.)
the Probate Code. There are some policy changes.
MR. MANLY explained the Uniform Law Commissioners promulgate
uniform laws, and every one of those uniform laws has policy
modifications. He thought it was important for the legislature in
each state to look at those policy modifications. (Indisc.) has
been endorsed by the American Association of Retired Persons,
specifically addressing the inclusion of life insurance. Other
groups involved with this legislation are, the American Bar
Association, the American College of Trusts and Estate Council;
basically those groups involved with and concerned with the field.
An area of dispute arises as to whether or not life insurance
should be included in what is known as the spouses's elective share
or the augmented estate. Mr. Manly commented that since the middle
ages, governing bodies have recognized that a person shouldn't be
able to totally disinherit a spouse. The public policy attitude is
either divorce your spouse and sell off while you're alive, but a
person can't just die and leave a surviving spouse (indisc.).
Number 730
MR. MANLY explained the current law in Alaska provides that a
surviving spouse must get at least one-third of the augmented
estate. In short form, the augmented estate is everything you own
and everything you control, including things governed by your will,
joint bank accounts, IRAs, et cetera. He said one thing the
augmented estate doesn't include under current Alaska law, is life
insurance which the holder can designate someone other than their
spouse as the beneficiary.
MR. MANLY further explained that life insurance to the surviving
spouse is included in the calculation of the augmented estate. But
life insurance to a third party is not. When the Uniform Law
Commissioners passed the current version of the Uniform Probate
Code used in Alaska, they specifically addressed that issue, and
did not include it because in their opinion it is not very often
that people try to disinherit their spouse by buying life insurance
and naming someone else as beneficiary. But, the natural outgrowth
to that is to set up a barrier to disinherit your spouse by leaving
a loophole. Anyone who wants to disinherit their spouse is
inclined to gravitate toward that loophole.
MR. MANLY stated the issue before the legislature now is whether or
not this loophole be left open. He said he has discussed this
issue with members of the insurance industry and there have been
some questions and concerns raised. He thought these could be
rectified by proper drafting. He used banks as an example. How do
you protect the interest of the bank who makes a client buy a life
insurance policy. To put it simply, the bank either takes over
ownership of the policy or the bank establishes a security interest
in the proceeds. Mr. Manly said he has the greatest respect for
banks and for their ability to adjust their form to make sure they
are adequately protected. He didn't think the legislature needed
to worry about those kinds of concerns.
Number 968
MR. MANLY added there is now a uniform 120-hour survival
requirement to determine a beneficiary. Mr. Manly said right now,
if he had a joint bank account with his wife or a life insurance
policy designating his wife as the beneficiary, if she survived him
by a tenth of a mili-second, she would take that property. The new
law imposes a 120-hour requirement. This falls under a near-
simultaneous death situation.
MR. MANLY gave an illustration of two people, husband and wife,
with children on both sides of their own, but no shared children.
There is a plane crash. Who survives who? Did the husband die
first of impact injuries and the wife died subsequently of bleeding
to death or vice a versa? Why should we care? Because these
people owned a house on the hill worth a half million dollars and
a $100,000 life insurance policy. If the wife died first, then it
all goes to the husband's kids of his prior marriage. If the
husband died first, it all goes to the wife's family by a prior
relationship. He explained this legislation eliminates those near-
simultaneous death calls; you have to survive 120 hours to take
under a life insurance policy unless the person who bought the life
insurance policy does otherwise. A person is certainly free to
change those rules in anything they write down on the beneficiary
designation.
MR. MANLY outlined another way life insurance has changed under the
concept of anti-lapse, which he stated was most easily illustrated
by an example. A father had a life insurance policy and he named
his three children as beneficiaries. One of those children died
before the father died, but the child that died left a couple of
children of his own. Currently under Alaska law, unless the life
insurance policy has a beneficiary designation that says otherwise,
the two surviving kids take and the grandchildren of the pre-
deceased child get nothing. The new law would change the default
rule; it would change the rule applicable if nobody says otherwise
and would instead send the deceased child's share to the deceased
child's children. It wouldn't go to the spouse, just to the actual
dependents. Mr. Manly said he didn't think there was any
legitimate justification, at this point, for excluding life
insurance from the application of any of these provisions. He said
he was focusing on life insurance because that seemed to be the hot
topic at the moment.
Number 1147
REPRESENTATIVE AL VEZEY questioned why it took 93 pages of statutes
to accomplish this.
Number 1169
MR. MANLY responded it was due to the requirements of the Internal
Revenue Service (IRS), families fighting after a death, and to
avoid litigation.
Number 1196
REPRESENTATIVE VEZEY asked if there really were 93 pages of changes
in existing probate statutes.
MR. MANLY said a lot of it was simply renumbering of existing code
sections.
Number 1210
REPRESENTATIVE VEZEY said it was a voluminous work and he had no
intention of reading it.
Number 1210
REPRESENTATIVE JOE GREEN asked if a person had a large life
insurance policy, stocks and a house on the hill, would the spouse
get one-third of the total assets or one-third of the individual
assets.
Number 1242
MR. MANLY said the spouse would get the value of the total assets
unless it was specified otherwise in a will. However, if a will
specified less than one-third, the spouse would have the right to
fight for the remaining excluded value.
Number 1279
REPRESENTATIVE CYNTHIA TOOHEY asked if wills, trusts and annuities
were grandfathered in.
Number 1300
MR. MANLY responded there was no grandfathering in unless a person
dies before the effective date of the act (indisc.) the 120 hour
survival requirement. For example, a joint bank account set up
before the effective date of the act for somebody who died after
the effective date of the act, would still be subject the new 120
hour survival requirement.
Number 1334
REPRESENTATIVE TOOHEY asked if life insurance was lumped into the
augmented estate, did it become subject to federal taxes.
Number 1350
MR. MANLY replied no, it would not change it a bit. He stated that
in fact, it might actually reduce the overall tax burden if the
wife were getting more, because of the unlimited marital deduction.
It certainly would not increase the tax, and might decrease it.
Number 1375
CHAIRMAN PORTER asked if there were a representative of the
American Council of Life Insurance who could testify.
Number 1395
BRUCE MOORE, Broker, and Second Vice President of the State of
Alaska Association of Life Underwriters, testified via
teleconference from Anchorage. He noted that he was not a member
of the American Council of Life Insurance. He said he had some
concerns and questions, some of which Mr. Manly had addressed.
However, he said, there were other issues of concern. He explained
that the purchase of life insurance was a result of a plan that an
individual put into play. The beneficiary designation allowed the
individual to direct large sums of money to those designated.
Removing the life insurance exemption in an augmented estate raised
a number of issues. For example, there could be an unintentional
deletion of a spouse, who still had care of the children, as
beneficiary upon divorce.
MR. MOORE cited a further concern that although no one wanted to
disinherit their spouse, by including life insurance, the spouse
was entitled to one-third of a person's estate. He added that in
many cases, life insurance was the biggest asset in an estate, no
matter how long a couple had been married. A spouse superseded any
type of beneficiary designation made in the past. Mr. Moore asked
the committee to give his organization more time to address these
issues.
Number 1597
REPRESENTATIVE DAVID FINKELSTEIN questioned Mr. Moore's emphasis.
Representative Finkelstein expressed that other assets were often
the largest part of a person's estate, including retirement funds.
He said the only argument he had heard was that in cases of divorce
many participants forgot to change their beneficiary designations.
However, he said, the potential to forget to make changes existed
with retirement and other assets as well. He asked why this one
asset should be exempted from the rules for other assets.
Number 1687
MR. MOORE replied that life insurance was a unique asset. The
other assets Representative Finkelstein had mentioned, such as
retirement funds, accumulated during a marriage should be
protected. Life insurance however, could be changed or purchased
at any time.
Number 1729
REPRESENTATIVE FINKELSTEIN said he understood Mr. Moore's argument
was that it accumulated during a lifetime and was directed as a
person pleased. Representative Finkelstein asserted that was true
for retirement funds as well, and he could not see the difference.
Number 1744
CHAIRMAN PORTER commented that he believed there was federal case
law involving distribution of retirement income to spouses in the
case of divorce.
Number 1757
REPRESENTATIVE FINKELSTEIN replied that he understood the money was
paid into a pool based on the one-third determination. If the
criteria was met, it did not matter where the money came from. He
explained he had chosen retirement as an example, but that other
investments used to achieve retirement would have the same factors
described by Mr. Moore. They accumulated over time; they could be
invested in over time or all at once; and there was a beneficiary
designated. He said he still did not see the difference.
Number 1790
REPRESENTATIVE GREEN offered an example for clarification, citing
a hypothetical divorce scenario where the wife got a settlement
which she gambled away. The husband died, leaving the wife as sole
custodian of their children, and perhaps of other children as well.
He asked how the settlement would be divided, as she was no longer
the spouse.
Number 1842
PETER BRAUTIGAN, Attorney, asked if a will existed. He asserted
that would determine the outcome.
Number 1865
MR. MANLY said a new spouse was entitled to a minimum of one-third
of the estate, to the exclusion of the children of the former
marriage. Beyond that one-third, the estate could be distributed
any way the man desired.
Number 1884
REPRESENTATIVE GREEN modified his cited example to include a
$100,000 life insurance policy, only $20,000 of other collateral,
and no second wife.
Number 1909
MR. MANLY clarified that only a current wife, not a former wife,
had the right to claim the one-third share. He added that a person
could disinherit his children or ex-spouse freely.
Number 1939
NANCY WALLACE, NEW YORK LIFE INSURANCE, testified via
teleconference from New York City. The following text is a
verbatim version of Ms. Wallace's written testimony.
"New York Life opposed House Bill 308's adoption of this amendment
to the UPC because it reflects a complete reversal of the Code's
original philosophy of the relationship between non-testamentary
devises and the augmented estate and more specifically because it
fails to recognize the role of insurance in helping individuals to
address valid estate planning concern which the insured is best
suited to evaluate.
"Including insurance in the augmented estate undermines the very
nature of the business of insurance which is to provide insurers
with a means to contract specific insurance benefits to designated
individuals. For many, insurance provides a much needed tool to
address specific individual life situations which the insured is in
the best position to evaluate. A number of specific scenarios our
agents have encountered may elucidate this concern. Insurers
frequently purchase policies for a number of reasons which Bill 308
would undermine. For example:
"an insured might purchase a policy to ensure funding for his
children's education, housing or welfare which is particularly
a concern for children from previous marriages;
"or an insured might purchase a policy to secure payment for
the care of his aging parents or a handicapped child, who will
need to be cared for for the rest of their natural lives;
"an insured might also purchase insurance to provide liquidity
for an estate so probate costs, estate taxes, etc. can be paid
for from the proceeds of the policy rather than from a forced
liquidation of real estate at an inopportune time such as when
real estate values are low, or in situations where the family
does not want to sell family property, such as in family
farms.
"These examples demonstrate just a few of the many reasons an
insured might consider in planning his estate. These situations
are unique to the individual. Consequently, that individual is the
person most capable of assessing and providing for those needs.
Insurance is an invaluable tool for such individuals to prepare to
address their unique needs. The individual's wishes in providing
this protection to their family and loved ones should not be
overridden by a probate court's application of a uniform
distribution of part of those proceeds. Those who advocate
inclusion of insurance proceeds in the augmented estate contend
that this bill is necessary to protect surviving spouses. Their
concern is that unscrupulous individuals will purchase insurance as
a means of defrauding their spouses of their elective share in an
estate. However, these advocates have never advanced any evidence
that insurers are actually using insurance in this manner.
"Given that there is no real world harm that this change would
address, and given the plethora of legitimate estate planning
concerns that individuals currently use insurance to address, the
most prudent policy decision seems to be to leave the choice of an
insurance policy's beneficiary up to the person most capable of
assessing the insured's specific family needs--that person is the
insured. For these reasons I hope you will oppose this amendment
to the UPC."
CHAIRMAN PORTER informed Ms. Wallace that she, or anyone else on
teleconference, could send written testimony by facsimile at (907)
465-3834.
Number 2133
REPRESENTATIVE FINKELSTEIN asked whether in cases where there was
a dependent or family member needing long-term care, with one
spouse attempting to direct all the life insurance there, why they
could not just get the consent of the other spouse ahead of time.
Number 2158
MS. WALLACE responded that in some cases involving children of
prior marriages, there could be a difficulty. There might be
different opinions as to the actual amounts required to support a
child with special needs. However, that should not preclude an
individual from purchasing future assets for a child, which should
not diminish assets available to the spouse.
Number 2185
REPRESENTATIVE FINKELSTEIN replied that of course that would
diminish assets available to the spouse. Policies cost money, and
some of them require regular payout over a long period of time. He
asked how Ms. Wallace could say it did not diminish the holdings.
MS. WALLACE responded that while it may diminish the holdings, it
did not diminish the extent of the assets in the longer term. For
$1 million in life insurance, one did not pay $1 million in
premiums. It was not removing $1 million from the spouse's estate.
Number 2217
RICHARD V. WELLMAN, Executive Director, Editorial Board, Uniform
Probate Code, testified via teleconference from Athens, Georgia.
He said the board was of the view, shared by Representative
Finkelstein, that insurance was an investment. He said there was
no just economic reason for singling out life insurance and making
it a way to avoid marital property obligations to a spouse, leaving
that spouse without adequate participation in family economics.
He said the insurance industry is seeking an exemption with the
claim that there is something unique about life insurance. Mr.
Wellman asserted there was nothing unique about life insurance; it
was another form of investment or death benefit contract. He said
they find no reason for an exemption; they feared that if there was
an exemption, it would merely create a new marketing device for
life insurance to make it attractive to those rare people who are
determined to stay married but nonetheless defeat their spouses'
expectations of sharing in the estate. He said that needs to
support dependents are met by one form of investment or another;
life insurance should not be distinguished as unique.
Number 2387
REPRESENTATIVE VEZEY asked Mr. Wellman if there was anything in HB
308 precluding a spouse from waiving their rights.
MR. WELLMAN replied there was nothing whatsoever. He added there
was no probate court order addressed, but rather an option to the
surviving spouse of obtaining the guaranteed minimum.
Number 2417
REPRESENTATIVE VEZEY asked how it would impact the use of life
insurance for guaranteeing the financial stability and continuity
of small businesses, for example, where there were partners or
associates with life insurance policies on each other.
MR. WELLMAN replied that excluded from any death benefit was that
for which the deceased paid fair consideration. Where business
contracts and agreements between partners existed, the survivor
would have insurance. He said those instances would not be
included in the augmented estate to the extent they had been bought
and paid for by the deceased.
REPRESENTATIVE VEZEY said he had not realized it would be normal
for the deceased to buy it; he had thought the partnership or
business entity (portion missing--end of tape).
TAPE 96-3, SIDE B
Number 000
REPRESENTATIVE VEZEY asked if it was Mr. Wellman's opinion that the
proposed changes in the probate law would affect the ability of
small businesses to use insurance to provide for the fiscal
stability and continuity of a business?
Number 072
MR. WELLMAN answered no, none whatsoever.
REPRESENTATIVE CON BUNDE set up a hypothetical situation regarding
a business partnership between a person and the chairman of the
board of a sparkplug company. This person wants to invest with
this company, but wants to make sure that the chairman will be
around for a while. The partner asks that the chairman take out a
million dollar insurance policy, naming the partner as the
beneficiary. If the chairman dies, the million dollars would not
go into the augmented estate, but would go to the partner directly
and not impact the survivors of this chairman's family?
MR. WELLMAN answered that's correct. This would be true under a
policy purchased by the beneficiary in an arms length arrangement
and the insured person is willing to go along with a gain such as
this one. These types of factors would be considered equivalents
by the bargainers. This is a death benefit where consideration has
been paid by the beneficiary.
Number 033
JERRY KURTZ, CODE REVIEW COMMITTEE, UNIFORM LAW COMMISSIONER FOR
ALASKA, testified by teleconference from Anchorage and responded to
Representative Vezey's question regarding the length of the probate
code. He pointed out that probate law has its roots in 15th
century England and the uniform code has attempted to refine and
condense this history.
MR. KURTZ has practiced law since 1961. He spoke specifically to
the insurance issue. As a bank attorney he sees no problem with
the change in the law regarding banks securing loans with small and
large businesses. He added there had been no discussion about
single premium life insurance, used more by persons who attempt to
get money out of their augmented estates in places where the
probate code exists. Most life insurance is bought with
installment payments, but he pointed out there's nothing to prevent
someone from buying a million dollar insurance policy for $800,000
presently because their life expectancy is short. This loophole
will be closed by the proposed change before the committee.
Number 181
TODD THACKER, PRUDENTIAL INSURANCE, testified by teleconference and
said he wished to echo the comments made by Nancy Wallace.
Number 200
DAVID LIFER, COUNSEL, AMERICAN COUNCIL OF LIFE INSURANCE, testified
by teleconference from Washington, D.C. and he also echoed what Ms.
Wallace said. He doesn't view this issue as a loophole. The key
thing to remember is that people should be allowed to purchase
insurance for all the reasons Ms. Wallace outlined. No one has
come forward with horror stories of abuse. He recalled no single
example of someone using this so-called loophole to defraud their
spouse. He added that there's good reason why life insurance is
not part of an augmented estate and absent any evidence that it's
causing harm, he urged the committee to leave things the way they
are. Mr. Lifer's business associate, Alicia Cordova, had nothing
to add.
DEBORAH RANDALL, testified by teleconference from Anchorage. Ms.
Randall commented that these code revisions before the committee
are extremely complicated. She suggested that the insurance
community review them very carefully. The only time insurance will
be brought back into the augmented estate, is if the insurance is
owned by (indisc.) The examples the insurance companies used in
non-support of HB 308 can be easily rectified by transferring the
ownership of an insurance policy to a trust created for children,
say for an education fund for example. The objective of including
life insurance into the code is because of the perceived loophole.
If there are individuals taking advantage of this situation, then
these revisions will prevent that from happening.
MS. RANDALL said there are two places in the statute which
specifically grants a spouse the right to waive their claim to the
elective share. They can waive it totally, along with their other
rights and they can also agree to the purchase of a life insurance
policy.
Number 384
PETER BRAUTIGAN, MEMBER BAR ASSOCIATION, PROBATE SECTION,
testified by teleconference from Anchorage and wished to echo what
Ms. Randall had said. As past chairman of the probate section for
the Alaska Bar Association, they have reviewed the code on numerous
occasions, which has resulted in many revisions. He had not heard
of any horror stories related to this life insurance loophole, but
was exposed to a circumstance which came very close to this
situation. Mr. Brautigan wholeheartedly supported this bill and
encouraged passage of it.
Number 441
ART PETERSON, ATTORNEY, UNIFORM LAW COMMISSIONER FOR ALASKA,
testified that this bill was a product of the uniform laws
conference based on three decades of work. Alaska enacted this
original probate code bill in 1972. Alaska has 25 years of
experience with the original version. The bill before the
committee attempts to incorporate the current recommendations of
the uniform laws conference to address all the questions that have
arisen over the years and to avoid litigation, and to generally
simplify probate. He briefly outlined the proposed amendments to
this bill.
MR. PETERSON pointed out as an aside that Mr. Wellman, who
testified, was also a Uniform Law Commissioner and was generally
considered the father of the probate code. He is the leading
expert on the subject.
MR. PETERSON then referred to his letter of September 5, 1995,
which summarized his position. There was one issue of dispute
between the Alaska attorneys in Anchorage and the Uniform Law
Commissioners regarding the elective share and whether to use the
version in the bill, which essentially continues Alaska's current
one-third provision for the surviving spouse or to use the Uniform
Law Commissioner's recommendation to use a phase-in approach. They
all agreed on the life insurance issue. The phase-in approach
would recognize that a late in life marriage does not provide the
surviving spouse the opportunity to participate in the development
of the martial estate the same as the long term marriage does. Is
it fair to provide the late in life spouse with as much of a share
in the estate as the long term marriage spouse? This goes to the
heart of the matter.
MR. PETERSON further outlined that the elective share cuts into
what the testator might have granted to the children of the former
marriage. Should the one year spouse be able to take the same
amount as the 30 year spouse? The Uniform Law Commissioners have
said no and have developed a phase-in approach for this. He
understood that Representative Finkelstein had some materials on
this issue, but he didn't know if these would be presented. Mr.
Peterson recommended this issue be presented in a separate bill.
Number 663
REPRESENTATIVE TOOHEY asked about a first marriage situation that
produces three children and only lasts three years. The husband
remarries and this relation lasts a long time. How does this work?
MR. PETERSON responded that the second wife, if she's the surviving
spouse, will get 50 percent of the estate instead of the 33
percent. The length of the marriage is the common denominator of
the phase-in approach.
REPRESENTATIVE TOOHEY then asked about this situation under the
existing law.
MR. PETERSON said that if the first wife stayed with the husband
for a long time, but ended in divorce and the second wife stays
with this person for a very short time, then the second wife gets
the full third. The surviving spouse is the common denominator in
this situation.
Number 720
REPRESENTATIVE BUNDE had some concerns about the phase-in concept.
He pointed out that a very good wife who was only married for two
years before her husband died, could have intended to stay in the
marriage a long time. If the intent is to address a late in life
marriage, then maybe an age qualification should be applied.
MR. PETERSON summed up this related conversation by stating that if
a late in life marriage is amicable then there's a good chance this
woman will be provided for in a will. Again, he spoke to the life
insurance issue. He said that it's such a small provision of the
overall legislation that to vote down the entire revised code is
foolish.
Number 817
REPRESENTATIVE FINKELSTEIN referred to the life insurance issue.
He asked if there was a unanimous agreement within the Uniform
Probate Committee regarding the life insurance clause.
MR. PETERSON said that was correct.
REPRESENTATIVE FINKELSTEIN then asked about the amendment regarding
the 30 percent in relation to the Uniform Probate Code. He said he
believed in the uniform code, as an attempt to make these probate
issues around the country consistent. He did not intend for this
phase-in amendment to totally change the direction of this probate
issue.
MR. PETERSON assured him that the amendment would serve to further
standardize the code. There were seven deviations from the
national version proposed by the group of attorneys in Anchorage.
The Uniform Law Commissioners of Alaska agreed to six of them. The
seventh related to this phase-in concept of the elective share.
They have not reached agreement on this issue. The phase-in
amendment is the version recommended by the national conference, it
is the version endorsed nationally, and he urged for the sake of
uniformity to have this separate amendment adopted.
REPRESENTATIVE FINKELSTEIN asked Mr. Peterson if he had any
opposition to present a phase-in amendment at this time. He
pointed out that if this amendment is already in the uniform code,
then it would be illogical to pass it as separate legislation.
MR. PETERSON said the proposed amendment would be in reference to
Section 202 now contained in the bill. He suggested they draft
this phase-in concept into a separate bill with a concurrent
effective date, the same as HB 308. His only concern is that they
don't burden a bill for which there is virtual unanimity on
everything in it except this phase-in provision.
REPRESENTATIVE FINKELSTEIN offered that this issue of graduated
percentages versus the 30 percent would probably move with the bill
through committees.
Number 983
REPRESENTATIVE GREEN asked if the graduated appropriation would be
in effect when a husband marries his wife and subsequently buys a
life insurance policy. Would the graduated proposal allowed to the
first wife of longer duration end up with the majority of the
proceeds?
MR. PETERSON answered no, only the surviving spouse. The prior
wife is out of the picture. If the decedent had purchased a life
insurance policy for the first wife, then the current surviving
wife will have under this bill the elective right to take a
percentage of this policy under the augmented estate.
Number 1053
REPRESENTATIVE BETTYE DAVIS asked for clarification about the
dissemination of the estate based on the one-third concept.
Chairman Porter explained that if the surviving wife received more
than one-third of the estate, the insurance policy payment would go
to the named beneficiary on the policy. Representative Davis
questioned why this division of the estate issue was in question
when this insurance benefit would go to the named beneficiary
anyway.
CHAIRMAN PORTER answered that the insurance company's concerns were
based on the possibility that the insurance policy could make up
the lion's share of the estate.
MR. PETERSON referred to the December 6, 1994, letter from Jerry
O'Leary, former chief counsel for the Life Insurance Association,
which indicates a confusion about life insurance provisions in the
probate estate versus the augmented estate. The augmented estate
is affected only in these rare instances. The probate estate can
include items which are considered non-probate transfers. The bill
does not make life insurance part of a probate estate.
REPRESENTATIVE DAVIS asked how many other states have adopted this
same code?
MR. PETERSON could not answer exactly, but thought around seven.
REPRESENTATIVE DAVIS asked why Mr. Peterson recommended the 30
percent rather than 50 percent? Why can't a provision be made for
50 percent right away?
MR. PETERSON answered that the 30 percent was the basic provision
in current Alaska law. The idea was to stay with the current
arrangement.
Number 1268
REPRESENTATIVE VEZEY asked about how this bill would affect a
prenuptial agreement?
MR. PETERSON thought the prenuptial agreement would be enforceable
and would govern if the wife in the prenuptial agreed not to pursue
the elective share. If she agreed not to go after more than one-
third of the estate, the prenuptial agreement would hold. Mr.
Wellman agreed with this analysis.
REPRESENTATIVE VEZEY asked what happened to people who die without
estate provisions?
MR. PETERSON responded that the spouse's benefits in this instance
would be improved, regardless of the makeup of the surviving family
members. This bill improves the percentage for the surviving
spouse to help clarify how the statute should deal with the variety
of situations presented.
REPRESENTATIVE VEZEY understood that the spouse of someone who died
intestate would get 100 percent of so much of the first part of the
estate.
MR. WELLMAN added that the surviving spouse would get 100 percent
of the first $50,000, which would apply to most average estates.
The augmented estate takes into account and builds onto what the
spouse already receives through testate succession, which could
include a will, probate transfers, et cetera. All of this would
add up. The spouse's position is accessed. The improved position
for intestate succession of the spouse is built in and reflected
when deliberating the assets. There's less likelihood of a
foreswore if the spouse is taken care of through the probate estate
and the intestacy laws.
REPRESENTATIVE VEZEY was still confused about existing law where
the wife would receive 100 percent of the first $50,000 of an
intestate estate.
MR. WELLMAN answered that the current law provides for the
intestate share of the spouse as $50,000 off the top.
REPRESENTATIVE VEZEY asked if these amounts shouldn't be adjusted
to allow for inflation, cost of living, et cetera.
MR. WELLMAN pointed out that these numbers had been built into the
bill.
Number 1609
REPRESENTATIVE BUNDE referred back to the earlier discussion about
the life insurance partnership relationship. He asked again if
this life insurance arrangement would not fall into part of the
augmented estate.
MR. PETERSON said yes, if the policy is owned by the partnership it
would not become part of the descendent's estate.
MR. WELLMAN also reiterated that if the decedent was the insured
and the insured controlled the policy, the insurance is subjected
to the augmented estate, unless that insurance is part of a
partnership agreement that provided to pay the partners of the
company.
Number 1736
MR. MANLY spoke to this issue. The durable way this situation
could be set up is with the insurance in a trust, owned by the
trust with a cross purchase arrangement where the other partner
owns the policy or the company owns the policy. In all these
cases, someone other than the insured owns the policy, which takes
it outside of the augmented estate. What happens if the descendent
owns the policy? In this instance this policy is subjected to the
augmented estate. If this was not the intent of the company,
somebody is going to get sued because this arrangement was set up
incorrectly.
MR. MANLY also suggested strongly that the committee adopt Mr.
Peterson's suggestion that a phase-in amendment be drafted.
Number 1912
REPRESENTATIVE TOOHEY moved to adopt Amendment 1, Title C.2 1996
for discussion purposes.
REPRESENTATIVE SEAN PARNELL, Sponsor, stated the amendment has
already been described by Mr. Peterson. He felt the first half of
the first page is self-explanatory. There was just a technical
change to the section of the bill regarding safekeeping of the will
by the court during the testator's lifetime. He asked Mr. Manly to
address the second half of the first page.
MR. MANLY explained the language on page 78, following line 30,
would insert a new subsection (b) that is simply a clarification to
avoid confusion indicating that someone can name the trustee on a
testamentary trust as a beneficiary of a life insurance policy. A
testamentary trust is one created under a will. A will has no
force or effect until a person dies. If a trust is set up under a
will this trust does not go into effect until a person dies. In
some court cases a concern has been raised as to whether someone
can name as a beneficiary of a life insurance policy, a trustee of
a testamentary trust under a will. This language simply clarifies
that someone is able to do this.
REPRESENTATIVE PARNELL clarified that the rest of the amendment is
fairly self-explanatory except for the deletion of the material
regarding amending Alaska Rule of Probate Procedure 5 which is part
of the title, and the last section of the amendment. Mr. Manly was
asked to address why this material was being deleted.
MR. MANLY pointed out that both sections provide for the
safekeeping of wills by the court before someone passes away,
rather than keeping a will in a safe deposit box, et cetera. A
person can deposit the will with the court for safekeeping. Under
the rules it is kept confidential until a person passes away. This
part of the amendment simply modifies the bill so it comes into
compliance with Section 5.
Number 2290
REPRESENTATIVE TOOHEY made a motion to adopt Amendment 1, C.2.
There being no objection, Amendment 1 was adopted.
REPRESENTATIVE FINKELSTEIN said the reasoning behind Amendment 2,
C.1 is that first it is part of the uniform code and second, the
concept of the marital contract and how it splits up the assets.
While he agreed with the concepts of the bill, he thought this
better reflects the actual situation. He explained that anyone who
wants to can give 100 percent of their assets to their spouse.
This amendment addresses the case where there isn't such an
allocation or the allocation is less than the minimum.
TAPE 96-4, SIDE A
Number 000
REPRESENTATIVE FINKELSTEIN cited the example of monetary and non-
monetary assets as contributions are built over time and are much
greater in a 20-year marriage versus a 5-year marriage. There is
more invested the longer people stay together. One of the effects
of this amendment is to reach the 50 percent. If someone stays
married 15 years, the 50 percent level has been reached. It's a
big investment and that person deserves at least half of the assets
of the estate. Representative Finkelstein withdrew the amendment.
He commented he had been convinced by the sponsor and others that
the amendment would not be in the best interest of the legislation.
He wanted to at least get onto the record the amendment itself so
the split in concepts was reflected.
Number 103
CHAIRMAN PORTER recognized the withdrawal of Amendment 2.
REPRESENTATIVE TOOHEY made a motion to move HB 308 from the House
Judiciary Committee with individual recommendations and zero fiscal
notes. There being no objection, it was so ordered.
HB 154 - REGULATORY TAKING OF PRIVATE PROPERTY
Number 270
CHAIRMAN PORTER announced the next order of business would be HB
154 regarding the regulatory taking of private property. He
commented this bill had received interim consideration and hearing.
He asked Representative Vezey, chairman of the subcommittee to give
a report of the subcommittee hearings.
REPRESENTATIVE VEZEY said subcommittee hearings were held in
Fairbanks and Wasilla with teleconference testimony from around the
state. The result of the testimony was incorporated into a
committee substitute prepared by the sponsor. He added that the
subcommittee had received some real quality testimony from people
with a lot of background, both from an administrative and legal
viewpoints.
Number 409
REPRESENTATIVE VIC KOHRING, sponsor of HB 154, said he was pleased
that so many people have testified on this bill; most of them
testified in support, which indicated to him that a major problem
did indeed exist. The major problem that he saw and which prompted
him to introduce this legislation was the issue of excessive
regulation in society which prevents an individual from being able
to use their private property and better their lives through
economic gain. He referred to the constitution, Article 8, Section
16, which states, "No person shall be involuntarily divested of
his right to the use of waters, his interest in lands or
improvements affecting either, except for a superior beneficial use
of public purpose and then only with just compensation by the
operation of law." He interpreted this to mean that if a
governmental entity were to take a person's private property
through restriction of its use, then there should be compensation
for any loss in economic value that results.
REPRESENTATIVE KOHRING said this legislation provides a person an
opportunity to seek recourse by exercising their constitutional
right. He said those of us in the legislature are here on behalf
of constituents, who have said enough is enough to big government
and excessive regulation. This hinders a person's ability to
better his or her life and hinders the growth of Alaska's economy.
He pointed out that regulation in society on a national level is
estimated at a cost of $640 billion a year. He coined the term
that this legislation is the "private property owner's bill of
rights."
REPRESENTATIVE KOHRING referred to the intent of the bill and said
it had to do with providing an opportunity to seek compensation in
the event there's an economic loss to a person's property. When he
referred to a taking it was not in the context of eminent domain,
but a taking in the sense of economic value. The reason for filing
this legislation was because Representative Kohring felt there was
a need for regulatory reform in society as a whole, and there was
a need for protecting the property rights for Alaska's citizens.
REPRESENTATIVE KOHRING stated he has been informed of numerous
cases in which property rights were taken away from people. He
cited the retiree in Wasilla who was forced to quit building his
home on a lake in the middle of the project due to new setback
restrictions, the gold miner in Fairbanks who was forced to pay
hundreds of thousands of dollars to keep up with the water quality
requirements, to the subdivider on the Kenai Peninsula who went
bankrupt because of unreasonable sewer and water regulations, to
the homeowner in Willow whose property was rendered worthless
because of wetlands designation. As elected officials,
Representative Kohring felt it was incumbent upon them to go to bat
for these people.
REPRESENTATIVE KOHRING added that in regards to a governmental
entity paying for the loss of economic value, they can withdraw at
any time. If there's a claim that's filed and a loss of economic
value is proven, then the regulation can be withdrawn, instead of
the claim being paid out. Representative Kohring said the net
effect of this legislation would be a blunting of the impact of
regulation in the state of Alaska. It would also make a
governmental entity think twice before a regulation is implemented.
He thought there would be a lot more careful thought going into
deciding if regulations should be imposed or if there should be
restrictions on the use of property. It will also force a
government entity to think of alternative ways to achieve their
objective and to what extent should they take a piece of property;
should it just be a certain portion, et cetera.
REPRESENTATIVE KOHRING stressed he was not saying that regulations
are bad per se and recognized the basic intent of a regulation is
to protect the health and well being of society. For example, if
there was a factory on a river which was polluting the air and
causing potential illnesses to the public, or polluting a waterway
and damaging a fish resource, this would be a justifiable taking if
the government came in and shut that factory down. However, if an
unjustified, unreasonable regulation was to be implemented where a
person was financially devastated, government just simply can't
walk away void of responsibility in regards to compensation.
Number 882
REPRESENTATIVE KOHRING addressed the issue of paying out for a
claim. When it comes to imposition of a regulatory restriction,
there is going to be a cost incurred. The question is who is going
to pay that cost? If there is a regulation that is imposed and a
government entity has to bear that cost as a result of the
implementation of this legislation, assuming it did become law,
that government agency would pay that cost. Without this law, it
would be the little guy, the property owner, who would have to pay
that cost.
REPRESENTATIVE KOHRING commented that this takings concept is not
a quirk, but rather a concept that is sweeping the nation. As a
matter of fact, 47 out of 50 states have filed regulatory takings
bills in their legislatures. In addition, Congress has a similar
bill as an element to their Contract for America. Our own
legislative leadership has made this bill a part of their
commitment to Alaska. He pointed out this was not an unfunded
mandate; it would not be a cost to society to the tune of many
millions of dollars, as people believe. It would be up to the
regulatory agency to decide if they're going to impose a
restriction that will cost them money.
REPRESENTATIVE KOHRING said he wanted to be perfectly up-front with
the committee with regard to supporters and opposition to the bill.
As he stated previously, this legislation is widely supported but,
certainly not by government, environmental groups, or the Alaska
Municipal League. Those that do support the bill are basically
the little guy; the average hard-working person. There are
numerous documented cases of takings throughout the state of
Alaska. He added this bill has generated a lot of support among
their colleagues; there are 10 members on the House side that have
co-sponsored and added their name to this bill. Additionally, they
have received support from members of the Alaska State Chamber of
Commerce, the Alaska State Home Builders Association and the
National Federation of Business. He referred to a survey that was
recently conducted by the latter agency. Two questions were asked
in the survey. The first was, should private property owners be
compensated for the reduction in value of their property by state
or municipal action. The response was 91 percent yes, 3 percent
no, and 5 percent undecided. The second question was, should a
state agency proposing or modifying a rule or regulation complete
an analysis prior to adoption to determine if the action
constitutes a taking and if so, the value involved. The response
was 88 percent yes, 3 percent no, and 8 percent undecided.
In conclusion, REPRESENTATIVE KOHRING said our freedoms and rights
as individuals have gradually eroded over the years and that
America and Alaska is not what it used to be. He pointed out that
this can change by passage of HB 154 which will send a message to
their constituents that the legislature is serious about taking a
strong stand against over-zealous government. He pointed out the
private property owner in the state of Alaska owns one-half of 1
percent of the land in Alaska.
Number 1181
REPRESENTATIVE FINKELSTEIN said he has often heard reference made
to 1 million acres of private land; the figure is actually 46
million acres of private land in the state of Alaska. Also, many
of the Native corporation lands, which make up the bulk of it, are
moving into various private uses through leases and outright sales.
He said he had a hard time understanding this issue. He presented
a hypothetical situation where there are a bunch of people in a
borough, city or state who are living on a stream or a river.
Everyone puts all their stuff out on the shore and then it turns
out these activities are impacting the salmon. These folks,
through the laws they've passed or the people they've elected, have
set up agencies to help figure out these issues for the use of all.
He said the Kenai River is regulated for the good of all and many
people lose uses. On the Kenai River and other places, the issue
is what to do with the riverfront land. It was his understanding
that under this bill they can still regulate it, but if they lose
30 percent of land value, the agency has to pay that somehow.
REPRESENTATIVE KOHRING answered that was correct.
REPRESENTATIVE FINKELSTEIN continued that now everyone gets paid
off, now the salmon do better, the habitat is restored, recreation
use increases, and property values goes up. He asked if the
property owners have to pay back the state? The common good is
what has gained that public benefit.
REPRESENTATIVE KOHRING answered no, and added government is here
for the people, not the other way around. He referenced the issue
of property owners impacting habitat along stream negatively, and
said if a governmental entity decides that it is important to
preserve that habitat, who should be responsible to pay for this
property loss? In his view the governmental agency representing
the community should pay that so in a sense the cost is spread
among a lot of people, instead of financially ruining one person
individually.
Number 1390
CHAIRMAN PORTER announced that it is the intent of the sponsor to
amend the retroactive portion of the bill. In other words, there
is within the bill, a provision that states if any of these
unlawful takings have occurred, they would be assessed
retroactively. This has caused some concern for a number of people
and it is the intent of the sponsor to offer an amendment to remove
this provision. It would then become a proactive piece of
legislation, rather than retroactive.
Number 1470
REPRESENTATIVE GREEN referred to the fiscal note and said it is
quite substantial, and even more so upon reviewing the background
materials which speak to hundreds of millions of dollars of
potential costs. He asked Representative Kohring if that seemed
reasonable and if so, would that represent the amount of loss from
private property owners undergoing these takings.
REPRESENTATIVE KOHRING answered he was not sure how those numbers
were calculated. He was fairly confident however that those
numbers represent the value of the loss that the private property
owner would incur. He pointed out the numbers do reflect the
retroactive provision of the bill; in his view the numbers would be
zero if the retroactive provision is taken out, which is what he
advocates.
Number 1555
CRAIG TILLERY, ASSISTANT ATTORNEY GENERAL, DEPARTMENT OF LAW
testified on CSHB 154. Mr. Tillery initially wanted to clarify
that he had been working from version (M) and had also seen a
version (R) of CSHB 154. He asked which version was before the
committee.
Number 1583
REPRESENTATIVE GREEN moved to adopt version 9-LS0602\R dated
1/17/96, as the working document.
Number 1600
CHAIRMAN PORTER asked if there was any objection. Hearing no
objection, version 9-LS0602\R was before the committee.
Number 1615
MR. TILLERY clarified what he understood to be a "taking" under the
constitution versus what this bill before the committee would
provide. Under the statute, any restraint on the use of property
by an agency, municipality, or other entity, would be a per se
taking and it would be compensable. Under the constitution, only
if there is a physical invasion of the property or in the
regulatory standard, if you deprive somebody of all the use of
their property, this is considered a per se taking and damages
would be allowed. If there was only a partial deprivation of
property then an analysis is applied, such as what the nature of
the governmental action was, the economic impact and whether or not
there was some kind of interference with a reasonable business
expectation of the use of the property. Mr. Tillery pointed out
that this latter factor was fairly important, since this concept of
business expectation was alluded to in the CS version before the
committee. It is an important concept to note because it prevents
windfalls.
MR. TILLERY continued the second difference here in relation to a
"taking" is that the statute covers the repeal of statutes and
regulations. It appears this CS does not provide for repeals.
Section 110 of the CS would suggest that it does cover repeals, but
the related definition section of CSHB 154 is ambiguous, in that it
doesn't include the discontinuation of government programs. Mr.
Tillery said he didn't understand what this meant, but he believed
that it would not cover say, the repeal of an individual zoning
ordinance, for instance.
MR. TILLERY stated thirdly, the constitution provides exceptions
for public and private nuisances. The statute only provides an
exception for a public nuisance and that is only as to one version
of the taking, subsection (a) under the definition of a taking.
Subsections (b) and (c) together essentially encompass anything
that's in (a). In the department's view, private and public
nuisances are not excepted and even though someone might be abating
a public or private nuisance, it would still be a taking under this
bill.
Number 1736
MR. TILLERY outlined his understanding of how this law would work
in specific exemplary instances and the potential economic impacts
it could have. He proposed to review specific sections of the CS
to point out situations the Department of Law felt were contrary to
the constitution, are internally contradictory or sections they
seem to have some particular problem with.
MR. TILLERY began his review of the CS by referring to section 130,
page 4, line 30, which provides that full compensation will be
required. A governmental entity may not engage in a action which
constitutes a taking of private property unless they pay full
compensation to the property owner. Mr. Tillery alluded to the
state law requirement for buffers along water bodies in timber
operations. These buffer zones are mandated by statute. After
review of this CS by DNR (Department of Natural Resources) they
felt the ramifications under this proposed definition of a taking
could mean approximately 200 million dollars paid the first year to
property owners, with approximately 40 million dollars paid each
year thereafter.
MR. TILLERY added that the Department of Law (DOL) believes the
bill provides a revolving payment on the amounts as listed
previously. Again, the example of the buffer zones was used. If
an entity makes a taking claim, was paid for those buffers and then
subsequently sells the property to another entity, is this new
owner compensated as well? This was ambiguous. There are other
sections of this legislation which relate to this concept of
retroactivity as well.
MR. TILLERY said another way this legislation could affect DNR
would be if the department wanted to lease oil and gas in Katchemak
Bay or Cook Inlet for example, or land leases for minerals. This
leasing would be considered a governmental action. This action
under the statute would in some instances have an affect on
adjacent land owners. These owners could then submit compensation
claims, since DNR would have lowered their property values by
granting leases to a business entity.
MR. TILLERY added that with respect to the Department of Fish and
Game (ADF&G), Mr. Tillery cited the example of fish allocation when
applied to this new legislation, such as fisherman harvesting fish
at False Pass versus fish caught at the Yukon Kuskokwim Delta. Mr.
Tillery argued that he was of the opinion that fish are a common
resource for everyone and the lack of a catch should not be
compensated against the value of a fisherman's permit. He did note
though that in the present CSHB 154 the definition of real property
reads, "resources capable of being harvested or extracted." He
also used the example of the state allocating more fish to the
sport fisherman on the Kenai River and how that would impact say,
a setnetter. Because of the decreased property value, i.e. the
fishing site, nets, etcetera, should the state be liable under the
"resources" definition to pay compensation?
MR. TILLERY also used the example of the Exxon Valdez Oil Spill
when the ADF&G, after the spill, closed specific fisheries because
of a zero tolerance policy. The state legitimately wished to
prevent any taint on the reputation of their salmon. Under this
bill this closure would have been a governmental action, it
decreases the value of boats, etcetera. The state, rather than
Exxon could have faced these claims.
Number 1999
MR. TILLERY stated that the Department of Environmental
Conservation (DEC) has a number of regulatory functions. For
instance, this department is responsible to carry out emission
inspections. There is a federal mandate that requires this. If
these inspections are not instituted, Alaska would loose highway
funds, which Mr. Tillery roughly stated as being 900 million
dollars. If requiring these emission tests is a governmental
action, it would appear that the state would likely be responsible
to pay for these tests. It could be that emission tests would be
illegal under this bill because under section 34.50.160, page five,
line 30, "A governmental entity may not require an owner of private
property, (for instance a car) to provide or pay for studies, maps,
plans, reports, (again, an emission report) or other information
used ...to impose a restraint on private property use." Mr.
Tillery pointed out that this is precisely the function of an
emissions test. It imposes a restraint.
MR. TILLERY added that these concerns are not fully explained in
this bill. He's particularly concerned about matters related to
the Alaska Oil and Gas Commission. This commission deals with
maximizing oil and gas resources and enforcing safety standards in
the course of extractions, such as blow-out prevention, well casing
requirements, prohibition of co-mingling of reservoirs, injection
of wastes into the ground and possibly the formation of exploratory
units, etcetera. These may be considered compensable takings under
the terms of this bill. To not do these things, compromises
safety and the royalty interests of the State of Alaska in oil and
gas. He also used the example of flaring. He was not sure if
flaring could be prohibited under the bill without paying for it.
Number 2114
MR. TILLERY outlined how this legislation affects the Commercial
Fisheries Entry Commission (CFEC) would be in this entity's
regulation of the issuance of limited entry permits. It is
anticipated in the future that there will be only so many permits
made available for fishermen and it is a legitimate concern under
this legislation that the state would be forced to compensate those
fishermen who did not make the final cut for acquiring permits.
This is especially true if it is determined that these permits are
considered a property interest loss.
MR. TILLERY also added that it would appear zoning under this
legislation would no longer be permissible, unless the regulating
entity would be willing to pay for exclusion. This bill provides
that zoning would be allowed if health and safety are at risk, but
then under the takings section of this legislation compensation
would be forthcoming. For example, if someone wanted to put a
seafood processing plant next to a beach house in a neighborhood
zoned residential, the seafood processing company would have to be
compensated for the loss of expectation in this property interest
if they were unable to place their company there. On the other
hand, if the local governmental entity gives them a variance and
allows this company in, the beach house owner could put a claim in
for his loss of real estate value.
Number 2205
MR. TILLERY then testified to the retroactive clause of this new
version of legislation, located on page 8, line 29. Initially he
understood that this legislation would not be retroactive, even
though it clearly stated in the present legislation that it is not
retroactive. Clearly this would not apply to someone who wasn't
able to log last year in the buffer zone, for example. If so, this
same person could file a logging plan again in the buffer zone and
get compensated for a foreseeable season. The statute, even though
it is an ambiguous, seems to allow this. Under full compensation
this would mean a reduction in monetary value, but would it be
reduced from where it was at a particular date and reduced from
what? Would it be reduced from what the regulation said, the
statute, or from what is constitutionally permissible?
MR. TILLERY stressed that all these questions come back to the
business expectations of the owner. When this person buys timber
for example, knowing that these laws are in place, he'll hopefully
buy it at a lower price. He shouldn't have a business expectation
for a higher price, because this would be foolish, although this
notion is not included in the pending legislation. On the other
hand, if this law was in effect now or constitutionally
permissible, this person would have a right to ask for a variance
in this buffer zone. DNR could give him a variance for every tree
in that buffer zone if ADF&G went along with it. By not giving him
a variance, would that be a compensable action? If you're required
to give them a variance, this person would stand to make a lot of
money.
Number 2316
MR. TILLERY then highlighted those areas which were not as
ambiguous in the CS, but ones he also had problems with. If an
agency established a particular restriction then they can either
choose to get rid of a restriction or pay for it's enforcement out
of it's budget. Clearly the attorney fees would come out of this
bill, but this is ambiguous. If in fact, it is the intent of the
CS delegate funds, then without question Mr. Tillery stated that
this was an unconstitutional delegation of the legislature's
authority over appropriations. The legislature in any given year
can reduce an agency's budget to reflect the need to pay off it's
judgments. Mr. Tillery was referring to section 34.50.100 on page
four, line 13. In addition, on the bottom of page 4, section
34.50.120, Mr. Tillery made a reference to the ambiguity of what
governmental agency specifically would be required to compensate a
party. He also cited on page 6, line 22, section 34.50.200 as a
reference to the agency responsible for compensation.
Number 2386
REPRESENTATIVE GREEN asked if it was possible where the state is
admonished to do something by the federal government, would an
impasse be created when a question of compensation was at issue?
Number 2407
MR. TILLERY understood that no, this would not be an issue. The
federal government rarely makes the state do something by force.
The federal government usually sets up a program with funding
incentives attached, such as highway speeds. If a state doesn't
enforce these speed limits, then they will not get any federal
funds to help with highways, for example.
Mr. Tillery referred to section 150, page 5, line 24, which speaks
to access. In addition to full compensation, if a regulation is
adopted and it restrains or deprives the owner of access to their
property, the owner must also be provided an alternative access.
Mr. Tillery wanted to make two points about this. First, this
section is ambiguous whether it means deprivation of the owner to
all access of the property or some access. But, more importantly
the provision requires full compensation. Full compensation
includes loss of access. To then require the agency to revisit
this issue and require the remedy of access is double recovery. A
deduction would need to be made to allow for this additional
recovery, which would be very difficult to do.
TAPE 96-4, SIDE B
Number 000
MR. TILLERY made some reference to attorney's fees, but because of
the break in the tape, his comments were incomplete.
MR. TILLERY referred to section 160, page 5, line 30 regarding the
prohibition against imposing costs. This section does not require
a property owner to provide information related to an entity which
is attempting to formulate a regulation or ordinance attached to a
particular parcel of land. This clause would force the agency to
pay for this investigative information. He used this law in
relation to polluting a salmon stream, but it was unclear as to
what conclusions he was attempting to reach with this particular
illustration.
MR. TILLERY then moved to section 110, page 4, which prohibits the
adoption of regulations to private property unless it has a least
possible effect on the property. Under section (b) this must be
supported by a full analysis of the total economic effect. As an
editorial note, Mr. Tillery pointed out that section (a), line 18,
refers to private property and in section (b) there is reference to
private real property.
MR. TILLERY further added that it seemed this section was
essentially requiring a NEPA (National Environmental Impact Act)
statement. This section would probably be used by people opposed
to development or in support of development to thwart the opposing
view point. This would result in agencies going through a lot of
expense to compile hugh records of analysis or simply not doing an
action. One concern he has heard from the Alaska Oil & Gas
Conservation Commission (AOGCC) is that they're currently working
with the oil companies to come up with a modern set of regulations
to governor oil exploration and development. Because of the
nuances outlined in this legislation, ones which would be
impossible to comply with, they could potentially thwart the entire
process. Mr. Tillery said this appeared to be adding a layer of
government, not reducing it, as well as, adding a layer of expense.
Number 136
MR. TILLERY moved on to section 190, page 6, line 11 which
concerned the adjustment of value for property tax. If a taking
has been instigated the municipality is required to reduce the
property's value. In part (b), line 17 of this CS, if the owner
contests this valuation, the owner can secure an independent
appraiser and apply this value instead. The State Appraiser after
consultation with various municipalities was adamantly opposed to
this. Mr. Tillery stressed that this practice was unprecedented
and it was contrary to good appraisal practices.
Number 181
TOM BOUTIN, STATE FORESTER, DIVISION OF FORESTRY, DEPARTMENT OF
NATURAL RESOURCES testified to the large fiscal note attached to
this legislation and cited this as his reasons for being present at
the meeting. This fiscal note was very large, but is accurate as
to the buffer zone issue as outlined by Mr. Tillery. This buffer
zone is required by statute and there are hundreds and millions of
dollars of trees left standing in these buffers. As far as
retroactivity, forestry areas are quite often submitted for re-
logging as the market changes.
Number 235
CHAIRMAN PORTER acknowledged that Mr. Tillery had raised a plethora
of issues and stated that it would be a great benefit to the
committee and sponsor if he could put his concerns on paper in
order that the committee could pour over it. He stated this
legislation would be rescheduled with full notice requirements.
Number 350
CHAIRMAN PORTER asked Mr. Tillery about the title to this
legislation having been shortened to "regulatory taking." Would he
be correct in assuming that an agency enforcing a statute under one
of these categories of diminishing property values, in dealing with
someone that fell within the purviews of this scenario, demanding
compensation; could they prevail, notwithstanding a regulation?
He referred to page 4, line 15, which read, "A governmental entity
may not adopt, amend, or repeal a regulation or ordinance relating
to private property, or impose..." He pointed out there was no
mention of a statute.
Number 405
MR. TILLERY stated that the legislature could not be bound to not
adopt, amend or repeal a statute. These can always be changed, but
he pointed out that this section wasn't the takings clause. This
one particular clause related to adopting a regulation. In no way
can a legislature be bound from changing the timber buffer law, for
example.
Number 418
CHAIRMAN PORTER stated that if for some reason the timber buffer
law were revisited and revised, say for example, to 100 feet from
60 feet, hence reducing the property value. If there were no
regulation that applied under this scenario, but a clause in the
statute needed to be enforced. Does the statute then result in a
taking that would fall into the compensation requirement?
Number 450
MR. TILLERY said the statute would not result in a taking, but the
executive branch's implementation would result in a taking that
would require compensation.
Number 465
CHAIRMAN PORTER responded that in other words they were not talking
here about regulations that seem to exceed a statute, but about
regulations that implement the intent of the statute.
Number 474
MR. TILLERY said that was correct. Theoretically regulations are
not really the issue here because a regulation can't exist outside
of a statute. A regulation has to be empowered by a statute. Even
if all the regulations were done away with, the bureaucracy
implementing the statute would still be in effect.
Number 489
REPRESENTATIVE FINKELSTEIN pointed out that all existing property
that anyone owns in Alaska was bought with existing regulations as
a constraint on price. If he was to predict this bill's passage
and purchase land along a stream with timber, the state might be
required to pay for every tree within his buffer zones, and he
would become a millionaire. The only other option would be to log
the land right down to the stream.
ADJOURNMENT
Number 604
CHAIRMAN PORTER adjourned the House Judiciary Committee meeting at
3:40 p.m.
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