Legislature(2013 - 2014)BARNES 124

02/25/2013 03:15 PM LABOR & COMMERCE


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03:48:51 PM Start
03:49:14 PM HB102
04:43:38 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Delayed to 3:45 pm --
*+ HB 102 RETIREMENT PLANS; ROTH IRAS; PROBATE TELECONFERENCED
Heard & Held
                    ALASKA STATE LEGISLATURE                                                                                  
          HOUSE LABOR AND COMMERCE STANDING COMMITTEE                                                                         
                       February 25, 2013                                                                                        
                           3:48 p.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Kurt Olson, Chair                                                                                                
Representative Lora Reinbold, Vice Chair                                                                                        
Representative Bob Herron                                                                                                       
Representative Charisse Millett                                                                                                 
Representative Dan Saddler                                                                                                      
Representative Andy Josephson                                                                                                   
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Representative Mike Chenault                                                                                                    
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
HOUSE BILL NO. 102                                                                                                              
"An  Act relating  to property  exemptions for  retirement plans,                                                               
individual  retirement  accounts,  and  Roth  IRAs;  relating  to                                                               
transfers of  individual retirement  plans; relating  to amending                                                               
Rule  64,  Alaska Rules  of  Civil  Procedure, and  Rule  301(a),                                                               
Alaska Rules of Evidence."                                                                                                      
                                                                                                                                
     - HEARD & HELD                                                                                                             
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
BILL: HB 102                                                                                                                  
                                                                                                                                
SHORT TITLE: RETIREMENT PLANS; ROTH IRAS; PROBATE                                                                               
SPONSOR(s): REPRESENTATIVE(s) KELLER                                                                                            
                                                                                                                                
02/01/13       (H)       READ THE FIRST TIME - REFERRALS                                                                        
02/01/13       (H)       L&C, JUD                                                                                               
02/25/13       (H)       L&C AT 3:15 PM BARNES 124                                                                              
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
REPRESENTATIVE WES KELLER                                                                                                       
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Testified as prime sponsor of HB 102.                                                                    
                                                                                                                                
ERNEST PRAX, Staff                                                                                                              
Representative Wes Keller                                                                                                       
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:   On behalf of the  sponsor, testified during                                                             
the discussion of HB 102.                                                                                                       
                                                                                                                                
BETH CHAPMAN, Attorney                                                                                                          
Faulkner Banfield, P.C.                                                                                                         
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Testified and  answered questions during the                                                             
discussion of HB 102.                                                                                                           
                                                                                                                                
JONATHAN BLATTMACHR, Attorney;                                                                                                  
Director, Estate Planning                                                                                                       
Alaska Trust Company                                                                                                            
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified and  answered questions during the                                                             
discussion of HB 102.                                                                                                           
                                                                                                                                
BRET KOLB, Director                                                                                                             
Division of Insurance (DOI)                                                                                                     
Department of Commerce, Community & Economic Development (DCCED)                                                                
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Testified and answered questions on HB 102.                                                              
                                                                                                                                
BRENDA NATION, Regional Vice President                                                                                          
State Relations                                                                                                                 
American Council of Life Insurers (ACLI)                                                                                        
Austin Texas                                                                                                                    
POSITION STATEMENT:  Testified and  answered questions during the                                                             
discussion of HB 102.                                                                                                           
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
3:48:51 PM                                                                                                                    
                                                                                                                                
CHAIR KURT  OLSON called  the House  Labor and  Commerce Standing                                                             
Committee  meeting  to  order  at   3:48  p.m.    Representatives                                                               
Reinbold,  Herron, Millett,  Saddler, Josephson,  and Olson  were                                                               
present at the call to order.                                                                                                   
                                                                                                                                
          HB 102-RETIREMENT PLANS; ROTH IRAS; PROBATE                                                                       
                                                                                                                                
3:49:14 PM                                                                                                                    
                                                                                                                                
CHAIR OLSON  announced that the  only order of business  would be                                                               
HOUSE BILL NO.  102, "An Act relating to  property exemptions for                                                               
retirement plans, individual retirement  accounts, and Roth IRAs;                                                               
relating to  transfers of  individual retirement  plans; relating                                                               
to  the  rights  of  judgment creditors  of  members  of  limited                                                               
liability   companies   and   partners   of   limited   liability                                                               
partnerships;  relating to  the Uniform  Probate Code,  including                                                               
pleadings,  orders,  liability,  and notices  under  the  Uniform                                                               
Probate  Code  and  the  Alaska Principal  and  Income  Act,  the                                                               
appointment  of  trust  property,   the  Alaska  Uniform  Prudent                                                               
Investor Act, co-trustees, trust  protectors, and trust advisors;                                                               
relating to the Alaska Principal  and Income Act; relating to the                                                               
Alaska  Uniform   Transfers  to  Minors  Act;   relating  to  the                                                               
disposition of  human remains;  relating to  the tax  on insurers                                                               
for life insurance policies; relating  to insurable interests for                                                               
certain   insurance  policies;   relating   to  restrictions   on                                                               
transfers   of  trust   interests;   relating  to   discretionary                                                               
interests  in  irrevocable  trusts;  relating  to  the  community                                                               
property of married  persons; and amending Rule  64, Alaska Rules                                                               
of Civil Procedure, and Rule 301(a), Alaska Rules of Evidence."                                                                 
                                                                                                                                
3:49:52 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE WES  KELLER, Alaska State Legislature,  sponsor of                                                               
HB 102,  stated Alaska first  modernized the trust laws  in 1977.                                                               
Alaska's trust laws  have brought millions into the  state due to                                                               
its  favorable trust  laws.    Even though  the  dollars are  not                                                               
direct  state  revenue dollars,  the  funds  in the  economy  and                                                               
affect jobs in the legal and trust industry.                                                                                    
                                                                                                                                
3:51:23 PM                                                                                                                    
                                                                                                                                
ERNEST  PRAX,  Staff,  Representative Wes  Keller,  Alaska  State                                                               
Legislature, stated  Representative Keller gave a  broad overview                                                               
of the bill.   He recognized testifiers available  to testify and                                                               
answer questions.                                                                                                               
                                                                                                                                
3:52:53 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  REINBOLD  made a  motion  to  adopt Amendment  1,                                                               
labeled,  28-LS0335\A.1,  Bannister,   2/19/13,  which  read,  as                                                               
follows:                                                                                                                        
                                                                                                                                
     Page 3, line 3:                                                                                                            
          Delete "AS 34.40.113"                                                                                             
          Insert "AS 34.40.118"                                                                                             
                                                                                                                                
There being no objection, Amendment 1 was adopted.                                                                              
                                                                                                                                
MR. PRAX  explained that Amendment  1 corrects a  drafting error,                                                               
which relates to Section 43 of the bill.                                                                                        
                                                                                                                                
3:54:24 PM                                                                                                                    
                                                                                                                                
BETH CHAPMAN,  Attorney, Faulkner Banfield, P.C.,  stated she has                                                               
practiced in  the trust and  estates law  for the past  25 years.                                                               
She indicated  HB 102 is an  important bill as it  would continue                                                               
to allow  Alaska to be considered  one of the premier  states for                                                               
trust  and estates  law.   It is  not only  helpful for  bringing                                                               
business into the  state, but it also keeps assets  in the state,                                                               
particularly  for  Alaskans.    She reported  that  most  of  her                                                               
clients are  Alaskans and  her law office  uses these  laws every                                                               
day for the wealthy and for others.                                                                                             
                                                                                                                                
MS. CHAPMAN then  highlighted important points in the  bill.  The                                                               
bill  would   continue  to  provide  and   clarify  the  creditor                                                               
protection  for  trusts  and  retirement  plans,  which  is  very                                                               
essential for  individuals, in particular, with  their retirement                                                               
accounts,  she said.   Sections  9-11 of  the bill  would provide                                                               
improvements to a provision to  allow modification of irrevocable                                                               
trusts without  going to  court to  do so.   This  provision will                                                               
give attorneys  the ability to respond  to changing circumstances                                                               
within  families  and keep  the  overall  legal costs  lower  for                                                               
families.                                                                                                                       
                                                                                                                                
3:56:00 PM                                                                                                                    
                                                                                                                                
MS. CHAPMAN  related that Sections 12-13  would address insurance                                                               
policies.    Sections 33-35  would  allow  the extension  of  the                                                               
Uniform Transfers of Minors Act,  which many families use to hold                                                               
assets  for  minor  children; these  trusts  generally  terminate                                                               
between ages  18-21.  She  pointed out that there  are situations                                                               
when it  might not  be a  good idea  to allow  a child  access to                                                               
trust funds,  and therefore  this proposed  change would  allow a                                                               
custodian to extend the trust  to age 25 in certain circumstances                                                               
in  order to  address  substance abuse  problems, immaturity,  or                                                               
other issues young adults might face.                                                                                           
                                                                                                                                
3:56:52 PM                                                                                                                    
                                                                                                                                
MS.  CHAPMAN then  pointed out  that  Section 36  proposes a  new                                                               
provision that  would allow individuals  to now  leave directions                                                               
with respect to  the disposition of remains.   Under current law,                                                               
a  person can  indicate preferences,  but the  preference is  not                                                               
legally binding.  At times, it  can lead to family disputes.  For                                                               
example,  she has  had a  client involved  in lengthy  litigation                                                               
regarding  the  burial  wishes  of  a parent.    In  brief,  this                                                               
provision  will  allow  individuals   to  leave  directives  with                                                               
respect to their remains.                                                                                                       
                                                                                                                                
3:57:33 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE REINBOLD understood this  bill allows Alaska to be                                                               
premier in trust and estates law.   She asked for examples of how                                                               
this would affect businesses in the  state and any assets kept in                                                               
the state.                                                                                                                      
                                                                                                                                
3:57:56 PM                                                                                                                    
                                                                                                                                
MS. CHAPMAN answered that prior  to 1997 trust companies were all                                                               
out-of-state companies.  She said  her clients would name an out-                                                               
of-state  trust  company  and the  assets  would  be  "custodied"                                                               
outside  Alaska.   Now, several  trust companies  are located  in                                                               
Alaska so  the assets remain  in the state.   Further, additional                                                               
business would be  brought to the state since  one requirement is                                                               
some  assets must  be located  in the  state on  deposit with  an                                                               
Alaska bank.   Rather than  going offshore, individuals  who wish                                                               
to  take advantage  of Alaska  laws would  set up  a trust  under                                                               
Alaska law and deposit funds with an Alaska trust company.                                                                      
                                                                                                                                
3:58:55 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  REINBOLD asked  whether  she could  name any  new                                                               
businesses and the nature of the assets she just described.                                                                     
                                                                                                                                
MS. CHAPMAN deferred to Mr.  Blattmachr, Alaska Trust Company, to                                                               
respond and  relate the  impact to its  business.   However, with                                                               
respect to  her clients,  Ms. Chapman  related that  multiples of                                                               
millions  of  dollars, probably  tens  and  tens of  millions  of                                                               
dollars  that have  stayed in  Alaska  [as a  result of  Alaska's                                                               
trust and estates law].                                                                                                         
                                                                                                                                
3:59:35 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HERRON  asked who  benefits besides  the customers                                                               
that bring their assets to Alaska.                                                                                              
                                                                                                                                
MS. CHAPMAN answered that the  clients using the laws benefit, as                                                               
well as  the employees of  the various trust companies  and banks                                                               
now   offering  the   trust   services.     Additionally,   other                                                               
professionals, such  as accountants  or lawyers in  the financial                                                               
planning area would benefit.                                                                                                    
                                                                                                                                
REPRESENTATIVE  HERRON  inquired  as  to the  advantages  to  the                                                               
state.                                                                                                                          
                                                                                                                                
MS.   CHAPMAN  responded   that  favorable   estate  laws   allow                                                               
businesses to  grow in  the trust area,  such as  trust companies                                                               
who  offer services.   Additionally,  the state  also receives  a                                                               
premium  tax  on insurance.    Further,  banks benefit  from  the                                                               
assets deposited.   She recalled  the president of  Northrim Bank                                                               
sent  a  letter  detailing  how it  has  affected  his  business.                                                               
Finally,  Alaskans  would  benefit  since  they  can  plan  their                                                               
estates  and  know Alaska's  courts  will  govern if  any  issues                                                               
arise.                                                                                                                          
                                                                                                                                
4:01:33 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HERRON  related his  understanding that  the state                                                               
receives the tax and then inquired as to how much is collected.                                                                 
                                                                                                                                
MS. CHAPMAN answered no; and deferred to Mr. Blattmachr.                                                                        
                                                                                                                                
4:02:08 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HERRON  understood Alaska is no  longer number one                                                               
in  the  nation [in  terms  of  being  beneficial for  trust  and                                                               
estates law.]                                                                                                                   
                                                                                                                                
MS. CHAPMAN said  that is correct; the state  has had significant                                                               
competition from  Delaware, South Dakota, and  Nevada since trust                                                               
and estates law is a continually growing field.                                                                                 
                                                                                                                                
REPRESENTATIVE HERRON  asked whether it is  beneficial for Alaska                                                               
to compete and  lower its tax or is there  a point of diminishing                                                               
returns.                                                                                                                        
                                                                                                                                
MS. CHAPMAN  deferred to Mr.  Blattmachr to speak to  the premium                                                               
tax.                                                                                                                            
                                                                                                                                
4:02:56 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE REINBOLD  asked how other states  benefit from the                                                               
amended laws and asked why Alaska should amend its current law.                                                                 
                                                                                                                                
MS. CHAPMAN answered  that other states benefit  since assets are                                                               
deposited  in these  other states,  which increases  their banks'                                                               
capital.    Additionally, the  trust  companies  charge fees  and                                                               
employ more  employees in  these states.   By amending  the trust                                                               
and estates  law, Alaska could  say it  still has the  best trust                                                               
and estates  law in the U.S.  and that the trusts  should be kept                                                               
in Alaska.                                                                                                                      
                                                                                                                                
4:04:01 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE REINBOLD  asked if  the money is  being circulated                                                               
in Alaska's economy.                                                                                                            
                                                                                                                                
MS.  CHAPMAN   confirmed  that  the  deposited   money  would  be                                                               
circulated since the banks can lend those funds.                                                                                
                                                                                                                                
4:04:21 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOSEPHSON related  his understanding that Delaware                                                               
is known for its friendly  corporate statutes, which has resulted                                                               
in businesses  incorporating there without doing  business there.                                                               
He questioned  whether that  could occur in  Alaska such  that an                                                               
individual  from  another  state  could establish  an  estate  in                                                               
Alaska.                                                                                                                         
                                                                                                                                
MS.  CHAPMAN  answered  that the  Alaska  statutes  require  some                                                               
assets be  located in Alaska,  rather than just allowing  the law                                                               
to be used.                                                                                                                     
                                                                                                                                
REPRESENTATIVE  JOSEPHSON inquired  as to  Ms. Chapman's  opinion                                                               
regarding the required nexus with Alaska.                                                                                       
                                                                                                                                
MS. CHAPMAN opined  that [the nexus requirement] it  is very good                                                               
as it  would help strengthen  any jurisdictional issues  that may                                                               
arise, such  as with a  conflict of  law question.   Further, the                                                               
nexus requirement "makes  it more real" and  provides a necessary                                                               
connection.                                                                                                                     
                                                                                                                                
4:06:25 PM                                                                                                                    
                                                                                                                                
JONATHAN BLATTMACHR, Attorney;  Director, Estate Planning, Alaska                                                               
Trust Company,  stated he  has been a  major protagonist  of this                                                               
bill.  He said he is a  member of the Alaska, California, and New                                                               
York bars.  In 1997, when  Alaska's trust and estates law passed,                                                               
Alaska received  tremendous positive  publicity that  resulted in                                                               
other  states  following  suit.   Although  Delaware  passed  its                                                               
version  of  Alaska's   law  within  30  days,   he  opined  that                                                               
Delaware's trust and estates law is  not as good as Alaska's law.                                                               
To date,  15-16 states have tried  to follow suit with  the trust                                                               
and estates law.  He said  these trust and estates laws have been                                                               
very  good for  all states.   In  fact, about  three years  ago a                                                               
Harvard  law  professor,  Robert  H. Sitkoff,  wrote  an  article                                                               
pointing  out  states which  have  passed  similar statutes  have                                                               
increased commerce in their trust and related industries.                                                                       
                                                                                                                                
4:08:06 PM                                                                                                                    
                                                                                                                                
MR. BLATTMACHR  summarized that Alaska  gets four  benefits [from                                                               
amending the trust  and estates law].  First, its  great laws for                                                               
Alaskans and  many more use these  laws than people in  the Lower                                                               
48.   Second, it has  stopped the  transfer of funds  outside the                                                               
jurisdiction  of  the  U.S.,  outside  the  jurisdiction  of  the                                                               
Internal Revenue  Service (IRS), and  the federal courts.   Thus,                                                               
people  have   greater  safeguard  since  American   courts  have                                                               
jurisdiction and  can undo  a wrong.   He informed  the committee                                                               
that he  had this idea in  the mid-1990s after reading  that over                                                               
$400  billion had  left the  U.S. to  little offshore  countries,                                                               
some  which cannot  be found  on a  map.   As mentioned  earlier,                                                               
Alaska now  has 15-16 states  as competitors.   Therefore, "We're                                                               
back here to put Alaska number one," he said.                                                                                   
                                                                                                                                
MR.  BLATTMACHR  related,  thirdly,   the  state  receives  state                                                             
premium taxes from  which it has received millions  of dollars of                                                               
taxes  on  life  insurance  premiums  that no  one  in  the  U.S.                                                               
would've  received  because  these   large  policies  were  often                                                               
structured  in Bermuda.   Therefore,  by imposing  a tiny  tax on                                                               
these very  large sums of money,  Alaska receives the tax  and it                                                               
does  not cost  the  state anything.    Alaska's only  competitor                                                               
[with regard  to the  premium taxes] is  South Dakota,  which has                                                               
dropped its  premium tax  by a  tiny margin.   Still,  Alaska has                                                               
been receiving most of the business, he opined.                                                                                 
                                                                                                                                
MR.  BLATTMACHR stated  the fourth  benefit -  which Ms.  Chapman                                                             
mentioned earlier - is the tens  of millions of dollars that have                                                               
been deposited  in institutions  in Alaska.   This  allows banks,                                                               
such  as Northrim  Bank,  to  have capital  to  loan to  Alaska's                                                               
businesses and  Alaska's homeowners.  He  characterized this bill                                                               
as a  tremendous win for  the state  and offered his  belief that                                                               
the changes in HB 102 will put Alaska as number one, again.                                                                     
                                                                                                                                
4:10:48 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE REINBOLD  inquired as  to what new  businesses are                                                               
directly impacted by this proposal.                                                                                             
                                                                                                                                
MR.  BLATTMACHR answered  that the  Alaska  Trust Company,  which                                                             
employs about  a dozen people, did  not exist until the  1997 law                                                               
passed.   He related the  Aleut Corporation backed  the formation                                                               
of  the Alaska  Trust company.   Additionally,  the Allen  Trust,                                                               
operating in Oregon, will be  opening a trust facility in Alaska.                                                               
He agreed  lawyers, paralegals,  accountants, and  life insurance                                                               
agents  in  Alaska all  also  benefit.   He  reiterated  numerous                                                               
relatively  high-paying managerial  jobs  have  been created  and                                                               
maintained for Alaskans.                                                                                                        
                                                                                                                                
4:12:32 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  REINBOLD  asked  whether  this  bill  would  make                                                               
Alaska  more attractive  and provide  an upswing  for the  state.                                                               
She further asked who would collect  the tax and whether it would                                                               
be deposited into the general fund.                                                                                             
                                                                                                                                
MR. BLATTMACHR  said he  unsure of  which division  would receive                                                             
the  taxes,  but  the  revenue  goes into  state  revenues.    He                                                               
reiterated that  the bill  would bring  more business  to Alaska.                                                               
He  related  that  he  previously had  a  large  estate  planning                                                               
practice  with at  least  300  clients, some  of  whom were  very                                                               
wealthy  who used  Alaska laws  for  their estate  planning.   In                                                               
fact,  one of  the wealthiest  clients in  the U.S.  directed his                                                               
will be  admitted to probate  in Alaska, which has  provided work                                                               
for  Alaskans.   Mr. Blattmachr  maintained that  Alaska's estate                                                               
planning laws  have been very  attractive, which has  resulted in                                                               
other  states becoming  jealous and  trying to  attract business.                                                               
Again, this bill will help keep the  state on top, he opined.  In                                                               
fact, Ms.  Chapman, David Shaftel, and  he plan to write  a major                                                               
article for  the estate planning  community if this  bill passes.                                                               
He said, "It's  not just deposits and taxes, it's  jobs as well."                                                               
He then characterized the bill as a triple winner for the state.                                                                
                                                                                                                                
4:14:55 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HERRON  asked whether it is  beneficial for Alaska                                                               
to compete  by lowering  its [state  premium] tax  or is  there a                                                               
point of diminishing returns.                                                                                                   
                                                                                                                                
MR.  BLATTMACHR opined  that it  would  be helpful  to lower  the                                                             
[state  premium tax],  but only  to the  level of  South Dakota's                                                               
rate.   When South Dakota first  changed its laws, most  New York                                                               
investment  bankers did  not think  the tiny  .02 of  one percent                                                               
would make a  difference.  Although Mr. Blattmachr  thought it is                                                               
the odd  case, some individuals  paying the premiums  [went where                                                               
there  were savings].   While  he did  not propose  meeting South                                                               
Dakota's rate, he said  he did not think it would  be a bad idea.                                                               
He clarified that Alaska is not  number one based on the rankings                                                               
of who has  the best laws for trust business.   Although there is                                                               
disagreement and some  think Nevada and South  Dakota are better,                                                               
he maintained that Alaska could be  the best with passage of this                                                               
bill.    Further,  it  doesn't cost  the  state  anything,  while                                                               
providing  new  jobs,  revenue  for the  state,  and  capital  in                                                               
Alaska's  banks.   In  fact,  when  the  original law  was  first                                                               
drafted, he insisted on an  Alaska trustee and the requirement to                                                               
deposit   money  in   Alaska  so   that  Alaska   would  benefit.                                                               
Furthermore, as Ms. Chapman indicated  earlier more Alaskans have                                                               
used the  trust and estates  law to their benefit  than residents                                                               
of any  other state.   In conclusion,  this new law  will provide                                                               
more  money  to  the  state,   in  particular,  with  respect  to                                                               
individual retirement accounts (IRAs).                                                                                          
                                                                                                                                
4:18:16 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HERRON  recalled that  effort to pass  these types                                                               
of laws has  been around for some time.   He asked whether former                                                               
Governor Knowles vetoed a similar bill.                                                                                         
                                                                                                                                
MR. BLATTMACHR  answered yes; that  when a prior bill  passed the                                                             
legislature,  House  Bill  96  -  which  he  thought  passed  the                                                               
legislature unanimously  - the  governor was  told it  could hurt                                                               
banks in  the state.   Therefore, the  governor vetoed  the bill.                                                               
The next  year the banks  supported the bill and  the legislature                                                               
passed  the  law  again.     He  characterized  the  veto  as  an                                                               
unfortunate misunderstanding.                                                                                                   
                                                                                                                                
4:19:13 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOSEPHSON asked  whether the  same jurisdictional                                                               
issue would apply  if an Alaskan wanted to go  through probate in                                                               
South Dakota, such  that he/she would need property  or assets in                                                               
South  Dakota to  open a  trust and  go through  probate in  that                                                               
state.                                                                                                                          
                                                                                                                                
MR. BLATTMACHR  answered that  he was the  first lawyer  to forum                                                               
shop for  trusts and  begin using South  Dakota trusts,  which he                                                               
did prior  to Alaska passing its  trust bill.  He  explained that                                                               
during that  time he called  South Dakota lawyers and  asked them                                                               
if he needed  a South Dakota trustee or whether  any funds needed                                                               
to be deposited in order to  use South Dakota trust laws to which                                                               
they  responded that  they didn't  know.   Therefore, the  Alaska                                                               
legislation is  crafted to be  very clear that an  Alaska trustee                                                               
is required, assets must be deposited  in Alaska, and part of the                                                               
administration of the trust has to  occur in Alaska.  Most of the                                                               
states  that have  passed  similar legislation  do  not have  the                                                               
nexus or  connection laws as  well defined as Alaska's  trust and                                                               
estates  law, he  said.    In fact,  he  tells  his clients  that                                                               
Alaska's trust and estates law provides them greater certainty.                                                                 
                                                                                                                                
4:20:51 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   REINBOLD  asked   who   collects  the   [premium                                                               
insurance] tax,  whether it is  deposited into the  general fund,                                                               
and if so, how much is collected.                                                                                               
                                                                                                                                
BRET KOLB,  Director, Division of Insurance  (DOI), Department of                                                               
Commerce, Community & Economic  Development (DCCED), answered the                                                               
[insurance premium] tax is collected  by the DOI and is deposited                                                               
into the general  fund.  With regard to the  amount collected, he                                                               
related  the division  is challenged  in finding  granular enough                                                               
data.    He  reported  the insurance  premium  tax  collected  is                                                               
approximately  $58   million,  annually;  however,   that  figure                                                               
represents all  insurance premium  taxes, not just  trust related                                                               
taxes.   He  explained that  the taxes  are not  reported to  the                                                               
level of specificity for him to break it down at this time.                                                                     
                                                                                                                                
REPRESENTATIVE REINBOLD  asked whether [more granular  data would                                                               
be available] if this bill  passes because those figures would be                                                               
helpful.   Although  she said  she is  thrilled that  the private                                                               
sector is also benefitting, she  expressed the desire to see that                                                               
the state is benefitting as well.   She then inquired as to where                                                               
the  earlier   mentioned  tens  of  millions   of  dollars  being                                                               
deposited in Alaska  is coming; she questioned  whether the money                                                               
is from Alaskans or from the outside of the state.                                                                              
                                                                                                                                
MR. KOLB  answered that he  couldn't speak  to the source  of the                                                               
funds  and who  is  depositing  money into  the  trust since  the                                                               
deposits  are on  the trust  side, which  doesn't fall  under the                                                               
DOI.  The  bill has only three sections  pertaining to insurance,                                                               
including the premium tax on insurance.                                                                                         
                                                                                                                                
4:23:48 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE REINBOLD  asked if  the DOI  can obtain  the trust                                                               
data.                                                                                                                           
                                                                                                                                
MR. KOLB answered that the DOI  is considering how to obtain more                                                               
granular data.   When the DOI receives a premium  tax payment, it                                                               
is a  large number and the  specific policy-by-policy information                                                               
is not  currently available.   However, he said he  is interested                                                               
in   gathering  such   data  since   it  would   provide  helpful                                                               
information.                                                                                                                    
                                                                                                                                
4:24:40 PM                                                                                                                    
                                                                                                                                
CHAIR  OLSON  related  his understanding  that  it  only  impacts                                                               
insurance policies in excess of $100,000.                                                                                       
                                                                                                                                
MR.  KOLB  confirmed Chair  Olson's  understanding.   In  further                                                               
response to Chair  Olson, Mr. Kolb reiterated that  at this point                                                               
the details  are not  available.  Currently,  the law  is written                                                               
specific to individual  life insurance policies and  HB 102 would                                                               
broaden it to allow group life insurance policies.                                                                              
                                                                                                                                
4:25:26 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HERRON,  referring to his earlier  question, asked                                                               
whether it's  beneficial for Alaska  to compete by  passing small                                                               
comprehensive  changes  to  its   laws,  including  lowering  its                                                               
premium insurance  taxes, or if  there is a point  of diminishing                                                               
returns.                                                                                                                        
                                                                                                                                
MR. KOLB  said he reviewed the  figures to get an  idea and found                                                               
that  $100 million  in individual  life  insurance premium  would                                                               
result in $102,000 in premium tax.   Although a change in the tax                                                               
rate from  .1 to .08  would result in a  relatively insignificant                                                               
impact in terms of the lower  amount of premium tax collected, it                                                               
may be helpful if it enhanced the environment.                                                                                  
                                                                                                                                
4:26:39 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HERRON  inquired  as   to  whether  changing  the                                                               
premium tax  rate would make it  less attractive for a  couple of                                                               
customers  since  some  customers, as  Mr.  Blattmachr  mentioned                                                               
earlier, may  want to save  the $5,000  to $10,000 that  would be                                                               
available under  the South Dakota  law versus Alaska's  trust and                                                               
estates law.                                                                                                                    
                                                                                                                                
MR. KOLB  answered that  lowering the  premium tax  portion would                                                               
slightly lower  the premium tax  on insurance  policies collected                                                               
by the state;  however, it would also result in  less premium tax                                                               
companies would have to pay.                                                                                                    
                                                                                                                                
4:28:10 PM                                                                                                                    
                                                                                                                                
CHAIR  OLSON  asked  whether  the   administration  has  taken  a                                                               
position on HB 102.                                                                                                             
                                                                                                                                
MR. KOLB answered that the state is neutral on the bill.                                                                        
                                                                                                                                
4:28:39 PM                                                                                                                    
                                                                                                                                
BRENDA   NATION,  Regional   Vice  President,   State  Relations,                                                               
American Council of Life Insurers  (ACLI), began by informing the                                                               
committee  that the  ACLI is  a national  trade association  that                                                               
represents the life  insurance industry.  The  ACLI's interest in                                                               
HB  102 is  more reflective  of insurance  interest statutes  are                                                               
being changed  in the  insurance code  in Alaska.   She  said the                                                               
ACLI works closely with the  National Conference of Commissioners                                                               
on Uniform  State Laws (NCCUSL)  on changes to the  uniform trust                                                               
code  with  respect  to  insurable interest.    She  referred  to                                                               
documents she also provided [in members' packets] from NCCUSL.                                                                  
                                                                                                                                
4:30:05 PM                                                                                                                    
                                                                                                                                
MS. NATION  recalled hearing testimony that  people want Alaska's                                                               
trust  laws  to  be  the   best  trust  laws,  including  greater                                                               
certainty.  However,  with respect to Section  39, everything was                                                               
followed  in  making  the NCCUSL's  amendments  mirrored  in  the                                                               
Alaska  law.   Thus, ACLI  would support  Section 39  of HB  102.                                                               
However, with  respect to Section 38,  the longstanding insurable                                                               
interest  law  in  Alaska,  a  phrase was  added  that  the  ACLI                                                               
believes would make the laws less  certain.  She referred to page                                                               
36, line  3, which adds  the language, "or immediately  after the                                                             
contract was made"  and noted it's a  longstanding principle that                                                             
insurable interest  exists at  the time of  the contract  and not                                                               
anytime afterwards.  She was  unsure of how to define immediately                                                               
after  the contract  and whether  it would  mean two  seconds, 30                                                               
minutes, or 30 days after the contract is signed.                                                                               
                                                                                                                                
4:31:51 PM                                                                                                                    
                                                                                                                                
MS.  NATION   then  explained  that  an   insurable  interest  is                                                               
necessary in  order for one person  or entity to take  out a life                                                               
insurance  policy on  another person;  it's  important to  ensure                                                               
that  any  beneficiary  of  a life  insurance  policy  wants  the                                                               
insured person to  live a long time and not  seek an early demise                                                               
to collect the insurance money.   In fact, the whole principle in                                                               
taking  out life  insurance is  so  a person's  family and  loved                                                               
ones, business parner,  and company relies on the  person to stay                                                               
alive to  provide economic  benefit or love  and affection.   She                                                               
concluded  this  is the  reason  why  every jurisdiction  has  an                                                               
insurable interest law  that says that insurable  interest has to                                                               
exist  at  the time  the  contract  is  made and  represents  the                                                               
turning  point  as  to  whether a  valid  life  insurance  policy                                                               
exists.  Inserting  the language [on page 36, line  3] calls into                                                               
question  whether an  insurable interest  exists and  if it  is a                                                               
valid life  insurance policy.   She said it could  cause problems                                                               
in terms  of whether  the insurance policy  is valid  and whether                                                               
the beneficiary can collect.   Therefore, the ACLI prefers not to                                                               
amend  Section 38(a)  because the  current law  is clear  and the                                                               
proposed language would create uncertainty in Alaska law.                                                                       
                                                                                                                                
4:33:56 PM                                                                                                                    
                                                                                                                                
MS. NATION then directed attention  to proposed Section 13, pages                                                               
16-18,  regarding  trustee duties  related  to  insurance.   Upon                                                               
discussions with  the sponsor,  she was  informed that  a similar                                                               
statute  passed in  Florida.   Since  it appears  that Alaska  is                                                               
following the  Florida law  enacted in  2010, she  requested that                                                               
her [written]  comments regarding  Section 13 be  withdrawn since                                                               
it   appears  to   address  her   concerns.     In  response   to                                                               
Representative Josephson, Ms.  Nation said that ACLI  has no real                                                               
interest  in the  balance  of  HB 102,  except  for the  proposed                                                               
change to Section 38.                                                                                                           
                                                                                                                                
REPRESENTATIVE JOSEPHSON  asked whether  she has  previously seen                                                               
the proposed language  on page 36, line 3,  "or immediately after                                                             
the contract was made".                                                                                                       
                                                                                                                                
MS.  NATION answered  no; not  in the  context of  true insurable                                                               
interest.   She  said she  has seen  proposals by  people in  the                                                               
secondary market,  the life settlements  industry, to  attempt to                                                               
change  state insurable  interest laws  to provide  for "sell  to                                                               
settle policies."   For  example, a situation  in which  a senior                                                               
citizens is  enticed to  take out a  large life  insurance policy                                                               
with  the promise  of  a  cruise to  the  Bahamas  or some  other                                                               
incentive to  use the  senior's insurability to  take out  a life                                                               
insurance policy and sell it to a secondary market investor.                                                                    
                                                                                                                                
4:37:07 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HERRON   asked  if  someone  could   provide  the                                                               
rationale to make the proposed changes.                                                                                         
                                                                                                                                
MR. BLATTMACHR  said he drafted  the bill and offered  his belief                                                               
that the language  in Section 38 clarifies the law.   Although he                                                               
said  he did  not think  Ms.  Nation's notion  that the  language                                                               
"immediately  after"  could  be  five months  was  a  sustainable                                                               
position,  he suggested  the language  could be  changed to  read                                                               
"immediately upon  the contract being made"  or similar language.                                                               
In doing  so, Ms. Nation would  not need to be  concerned that it                                                               
could  be  a  millisecond  after  the  policy  is  issued.    Mr.                                                               
Blattmachr agreed with Ms. Nation  that it is important to ensure                                                               
the law  does not  encourage murder  as evidenced  by one  of the                                                               
leading decisions by Justice Holmes,  who said it is important to                                                               
balance people's rights  to make contracts and the  right to keep                                                               
people from  being murdered.   Therefore, as  long as  the person                                                               
has an interest in making sure  that the person lives rather than                                                               
benefiting if the person dies, then  the policy has to be issued.                                                               
He  did not  think  Ms.  Nation would  disagree  with  that.   He                                                               
explained  that  sometimes  insurance policies  have  an  annuity                                                               
feature and if a person owns  an annuity, the person doesn't want                                                               
them to  die.   These annuities are  often imbedded  in policies,                                                               
but the person may not have  a full insurable interest until that                                                               
annuity part  of the policy is  issued.  Therefore, he  wanted to                                                               
ensure that if the insurable interest  is there at the moment the                                                               
policy is  issued, then the  person should  be deemed to  have an                                                               
insurable interest.   He  assured Ms.  Nation that  this proposal                                                               
has nothing to do with the  secondary life insurance market.  The                                                               
industry  has  been  against  the  stranger  own  life  insurance                                                               
(STOLI) and [this  proposed language change to Section  38] in no                                                               
way promotes STOLI.                                                                                                             
                                                                                                                                
4:40:41 PM                                                                                                                    
                                                                                                                                
CHAIR OLSON inquired  as to the difference in the  meaning of the                                                               
proposed  language  in  Section  38, "or  immediately  after  the                                                             
contract  was made",  and Mr.  Blattmachr's  suggested change  to                                                             
that language,  "immediately upon the  contract being made".   He                                                               
further asked why the language change is necessary.                                                                             
                                                                                                                                
MR. BLATTMACHR answered  that the reason is to ensure  that if an                                                               
interest arises  at the time a  policy is issued that  the person                                                               
would be deemed  to have an insurable interest and  make sure the                                                               
person continues to live.                                                                                                       
                                                                                                                                
CHAIR  OLSON asked  why the  change couldn't  be made  before the                                                               
contract was issued.  He asked Mr. Kolb to respond.                                                                             
                                                                                                                                
MR. KOLB said it seemed  redundant, although he cautioned that he                                                               
is not a  lawyer.  He thought "or immediately  after the contract                                                               
was  made" appears  to  say  the same  thing  as "or  immediately                                                               
before the contract was made."                                                                                                  
                                                                                                                                
4:42:13 PM                                                                                                                    
                                                                                                                                
MR.  BLATTMACHR  informed the  committee  that  this issue  arose                                                               
after he spoke  to agents in New York who  develop what are known                                                               
as private placement life insurance  policies, which are the very                                                               
large polices now coming to  Alaska and for which Alaska receives                                                               
the   premium   tax.     The   parties,   he  explained,   wanted                                                               
clarification  and suggested  that  "immediately after"  language                                                               
would suffice since  it meant immediately after  the contract was                                                               
made.   He  said, "But  I  can't prove  that there  isn't a  time                                                               
between  when the  policy is  issued and  immediately thereafter.                                                               
So,  in order  to  satisfy  the people  who  want  to send  these                                                               
polices through the State of  Alaska, we're now suggesting it say                                                               
'immediately  when  the  contract  is  made'  and  I  think  that                                                               
addresses the concerns that Ms. Nation mentioned."                                                                              
                                                                                                                                
4:43:02 PM                                                                                                                    
                                                                                                                                
CHAIR OLSON acknowledged that several  members are concerned, and                                                               
therefore HB 102 will be held  over.  Further, a legal opinion on                                                               
the language will  be sought.  Chair Olson,  noting his insurance                                                               
background, said he does not see the purpose of the language.                                                                   
                                                                                                                                
4:43:38 PM                                                                                                                    
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
There being no  further business before the  committee, the House                                                               
Labor and  Commerce Standing Committee  meeting was  adjourned at                                                               
4:43 p.m.                                                                                                                       

Document Name Date/Time Subjects
HB102 ver A.pdf HJUD 3/27/2013 1:00:00 PM
HL&C 2/25/2013 3:15:00 PM
HB 102
HB102 Sponsor Statement.pdf HJUD 3/27/2013 1:00:00 PM
HL&C 2/25/2013 3:15:00 PM
HB 102
HB102 Sectional Analysis.pdf HL&C 2/25/2013 3:15:00 PM
HB 102
HB102 Supporting Documents-American Bar Association All About Trusts.pdf HJUD 3/27/2013 1:00:00 PM
HL&C 2/25/2013 3:15:00 PM
HB 102
HB102 Supporting Documents-Contracts Clause Issue.pdf HJUD 3/27/2013 1:00:00 PM
HL&C 2/25/2013 3:15:00 PM
HB 102
HB102 Supporting Documents-Email Brenda Nation-Amer Council of Life Insurers 2-22-2013.pdf HL&C 2/25/2013 3:15:00 PM
HB 102
HB102 Supporting Documents-Leg Legal Memo 1-29-2013.pdf HJUD 3/27/2013 1:00:00 PM
HL&C 2/25/2013 3:15:00 PM
HB 102
HB102 Supporting Documents-Letter Northrim Bank 2-19-2013.pdf HL&C 2/25/2013 3:15:00 PM
HB 102
HB102 Supporting Documents-Letter-Keating Stein 6-24-2010.pdf HL&C 2/25/2013 3:15:00 PM
HB 102
HB102 Supporting Documents-NCCUSL Insurable Interest FINAL July 2010.pdf HL&C 2/25/2013 3:15:00 PM
HB 102
HB102 Supporting Documents-Single Subject Rule.pdf HL&C 2/25/2013 3:15:00 PM
HB 102
HB102 Draft Proposed Amendment A.1.pdf HL&C 2/25/2013 3:15:00 PM
HB 102
HB102 Fiscal Note-DOA-DRB-2-22-13.pdf HJUD 3/27/2013 1:00:00 PM
HL&C 2/25/2013 3:15:00 PM
HB 102
HB102 Fiscal Note-DCCED-DOI-02-22-13.pdf HJUD 3/27/2013 1:00:00 PM
HL&C 2/25/2013 3:15:00 PM
HB 102
HB102 Fiscal Note-DOR-TRS-02-22-13.pdf HJUD 3/27/2013 1:00:00 PM
HL&C 2/25/2013 3:15:00 PM
HB 102
HB102 Fiscal Note-LAW-CIV-02-22-13.pdf HJUD 3/27/2013 1:00:00 PM
HL&C 2/25/2013 3:15:00 PM
HB 102