Legislature(1999 - 2000)

05/03/1999 02:02 PM Senate JUD

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
              SENATE JUDICIARY COMMITTEE                                                                                        
                     May 3, 1999                                                                                                
                      2:02 p.m.                                                                                                 
                                                                                                                                
MEMBERS PRESENT                                                                                                                 
                                                                                                                                
Senator Robin Taylor, Chairman                                                                                                  
Senator Rick Halford, Vice-Chairman                                                                                             
Senator Dave Donley                                                                                                             
Senator Johnny Ellis                                                                                                            
                                                                                                                                
MEMBERS ABSENT                                                                                                                  
                                                                                                                                
Senator John Torgerson                                                                                                          
                                                                                                                                
COMMITTEE CALENDAR                                                                                                              
                                                                                                                                
SENATE JOINT RESOLUTION NO. 25                                                                                                  
Relating to voluntary school prayer.                                                                                            
                                                                                                                                
          -MOVED SJR 25 OUT OF COMMITTEE                                                                                        
                                                                                                                                
SENATE BILL NO. 162                                                                                                             
"An Act relating to the rule against perpetuities, nonvested                                                                    
property interests, and powers of appointment; and providing for an                                                             
effective date."                                                                                                                
                                                                                                                                
     -HEARD AND HELD                                                                                                            
                                                                                                                                
SENATE BILL NO. 163                                                                                                             
"An Act relating to a trustee's duties to inform and account to                                                                 
beneficiaries; relating to the revocation, modification,                                                                        
termination, reformation, construction, and trustees of trusts; and                                                             
relating to transfer restrictions in trusts."                                                                                   
                                                                                                                                
     -HEARD AND HELD                                                                                                            
                                                                                                                                
CS FOR HOUSE BILL NO. 83(JUD)(title am)                                                                                         
"An Act relating to certain securities occupations and investment                                                               
pools; relating, with regard to the Alaska Securities Act, to                                                                   
federal covered securities, the registration of securities, the                                                                 
general exemptions for securities and transactions, Internet offers                                                             
of securities and transactions, file confidentiality, petitions to                                                              
superior court by the administrator to reduce civil penalties to                                                                
judgment, time limits for bringing court actions for violations,                                                                
administrator-established fees and administrator-required                                                                       
reimbursements, consent to service, title, sales, purchases, offers                                                             
to sell, and offers to purchase; exempting certain violations of                                                                
the Alaska Securities Act from criminal penalties; amending or                                                                  
repealing certain current definitions in the Alaska Securities Act;                                                             
providing new Alaska Securities Act definitions for certain                                                                     
securities occupations, for certain federal statutes, and for the                                                               
terms 'advisory client,' 'advisory fee,' 'advisory services,'                                                                   
'clients who are natural persons,' 'federal covered security,'                                                                  
'investment advisory business,' 'investment advisory contract,'                                                                 
'NASDAQ,' 'notice filing,' 'place of business,' 'principal place of                                                             
business,' 'securities business,' 'substantial portion of the                                                                   
business,' and 'supervised person'; and providing for an effective                                                              
date."                                                                                                                          
                                                                                                                                
     -HEARD AND HELD                                                                                                            
                                                                                                                                
PREVIOUS SENATE COMMITTEE ACTION                                                                                                
                                                                                                                                
SJR 25 - No previous action to report.                                                                                          
                                                                                                                                
SB 162 - No previous action to report.                                                                                          
                                                                                                                                
SB 163 - No previous action to report.                                                                                          
                                                                                                                                
HB 83 - See Labor and Commerce minutes dated 4/20/99.                                                                           
                                                                                                                                
WITNESS REGISTER                                                                                                                
                                                                                                                                
Senator Jerry Ward                                                                                                              
State Capitol                                                                                                                   
Juneau, AK 99801-1182                                                                                                           
POSITION STATEMENT:  Presented SJR 25                                                                                           
                                                                                                                                
Mr. Jeff White                                                                                                                  
PO Box 9148                                                                                                                     
Ketchikan, AK 99901                                                                                                             
POSITION STATEMENT:  Testified in support of SJR 25                                                                             
                                                                                                                                
Ms. Marsha George                                                                                                               
PO Box 7175                                                                                                                     
Ketchikan, AK 99901                                                                                                             
POSITION STATEMENT:  Testified in support of SJR 25                                                                             
                                                                                                                                
Ms. Beth Chapman                                                                                                                
302 Gold Street                                                                                                                 
Juneau, AK 99801                                                                                                                
POSITION STATEMENT:  Testified in support of SB 162 and SB 163                                                                  
                                                                                                                                
Ms. Mary Zemp                                                                                                                   
302 Gold Street                                                                                                                 
Juneau, AK 99801                                                                                                                
POSITION STATEMENT:  Testified in support of SB 162 and SB 163                                                                  
                                                                                                                                
Mr. Dave Shaftel                                                                                                                
550 W. 7th Ave. #705                                                                                                            
Anchorage, AK 99501                                                                                                             
POSITION STATEMENT:  Testified in support of SB 162 and SB 163                                                                  
                                                                                                                                
Mr. Rich Hompesch                                                                                                               
119 N. Cushman Suite 400                                                                                                        
Fairbanks, AK 99701                                                                                                             
POSITION STATEMENT:  Testified in support of SB 162 and SB 163                                                                  
                                                                                                                                
Representative Norman Rokeberg                                                                                                  
State Capitol                                                                                                                   
Juneau, AK 99801-1182                                                                                                           
POSITION STATEMENT:  Presented HB 83                                                                                            
                                                                                                                                
Mr. Terry Elder                                                                                                                 
Senior Securities Examiner                                                                                                      
Division of Banking, Securities                                                                                                 
  and Corporations                                                                                                              
PO Box 110807                                                                                                                   
Juneau, AK 99801-0807                                                                                                           
POSITION STATEMENT:  Testified in support of HB 83                                                                              
                                                                                                                                
ACTION NARRATIVE                                                                                                                
TAPE 99-28, SIDE A                                                                                                              
Number 001                                                                                                                      
                                                                                                                                
CHAIRMAN ROBIN TAYLOR called the Judiciary Committee meeting to                                                                 
order at 2:02 p.m.  Present were Senators Halford, Donley, Ellis,                                                               
and Chairman Taylor.  The first order of business to come before                                                                
the committee was SJR 25.                                                                                                       
                                                                                                                                
                 SJR 25-VOLUNTARY SCHOOL PRAYER                                                                                 
                                                                                                                                
SENATOR JERRY WARD, sponsor, explained SJR 25 requests the Alaska                                                               
congressional delegation to support the passage of HJR 7 and SJR 1,                                                             
related to school prayer.  Those resolutions read:                                                                              
     Nothing in this Constitution shall be construed to prohibit                                                                
     individual or group prayer in public schools or other public                                                               
     institutions.  No person shall be required by the United                                                                   
     States of any other state to participate in prayer.  Neither                                                               
     the United States nor any state shall compose the words of any                                                             
     prayer to be said in public schools.                                                                                       
                                                                                                                                
SENATOR WARD pointed out prayer in public schools occurred until                                                                
1962, at which time an unelected judge decided it was                                                                           
unconstitutional.  He believes that decision was in error.                                                                      
                                                                                                                                
SENATOR WARD said he introduced SJR 25 after watching a news story                                                              
about the shootings at the Littleton, Colorado high school. A                                                                   
teacher, who told the students to pray in a classroom for the other                                                             
students during the incident, broke the law. He noted that prayer                                                               
is the most powerful tool he is aware of.  He feels that the debate                                                             
about allowing prayer in public schools needs to occur on the                                                                   
federal level.  He asked that the Alaska Legislature go on record                                                               
in support of allowing prayer in public schools.                                                                                
                                                                                                                                
Number 097                                                                                                                      
                                                                                                                                
MR. JEFF WHITE, the principal of a private Christian school in                                                                  
Ketchikan, made the following comments via teleconference.  He                                                                  
supports SJR 25 and believes that when prayer was no longer                                                                     
permitted in public schools, violence, teen pregnancy, drug and                                                                 
alcohol abuse escalated.  The older generation benefitted from a                                                                
school system that had prayer time.  The Bible speaks of a                                                                      
generation that did not know God.  We are raising a generation                                                                  
without the knowledge of God.  Likewise, he believes reciting the                                                               
Pledge of Allegiance instills in children a bond with their nation                                                              
and a sense of patriotism.  Teenagers learn to apply what they were                                                             
taught as children and what we are seeing today is teenagers who                                                                
have no standards to live by.                                                                                                   
                                                                                                                                
Number 175                                                                                                                      
                                                                                                                                
MARSHA GEORGE, affiliated with the Church of God in Ketchikan,                                                                  
stated that prayer, and volunteer and paid chaplains, are available                                                             
to and the military and jail system, legislatures and Congress, and                                                             
in some work places.  She questioned why chaplains and prayer have                                                              
been outlawed in public schools.  Prayer has been outlawed yet                                                                  
abortion and gambling are legal in many states and many states are                                                              
seriously considering legalizing euthanasia.  She wishes the                                                                    
leadership of this country would do the right thing and legalize                                                                
prayer in school.                                                                                                               
                                                                                                                                
Number 234                                                                                                                      
                                                                                                                                
SENATOR DONLEY stated that SJR 1 specifies that no person be                                                                    
required by the United States or any state to participate in                                                                    
prayer, and it says that neither the United States nor any state                                                                
should compose the words of any prayer to be said in public                                                                     
schools.  He questioned the constitutional interpretation of the                                                                
words "any state" and whether a school district could required                                                                  
students to participate in prayer and could approve certain                                                                     
prayers.                                                                                                                        
                                                                                                                                
SENATOR WARD replied a school district could not.  He noted SJR 1                                                               
is intentionally written to prohibit anyone from imposing his/her                                                               
religious views on another.                                                                                                     
                                                                                                                                
SENATOR DONLEY questioned how a school will determine what words                                                                
are used in the prayer.                                                                                                         
                                                                                                                                
SENATOR WARD answered the prayer would be silent.  He explained                                                                 
silent prayer occurred in 1962 when the American Civil Liberties                                                                
Union fought that activity in court and won.  He pointed out the                                                                
same court prohibited the posting of the Ten Commandments in a                                                                  
school, yet it decided that Larry Flint had the right of free                                                                   
speech.  He asserted it is time that legislators have this debate                                                               
on a national level to see what the country's moral compass is.  He                                                             
repeated nothing in SJR 1 or HJR 7 imposes any words of prayer or                                                               
any specific religious beliefs.                                                                                                 
                                                                                                                                
Number 282                                                                                                                      
                                                                                                                                
SENATOR DONLEY noted he is trying to figure out how the proposed                                                                
constitutional amendment will relate because while SJR 1 and HJR 7                                                              
appear to allow verbal prayers, they specify that neither the                                                                   
federal or state governments can compose the words of the prayer.                                                               
He questioned who will determine what prayer will be said.                                                                      
                                                                                                                                
CHAIRMAN TAYLOR agreed the issue is somewhat ambiguous but he                                                                   
pointed out that at times, not all legislators are in agreement                                                                 
with the prayer offered on the Senate floor, yet the carrying out                                                               
of the law will have to be left to the person offering the                                                                      
ministerial service.  He noted the chaplains in the Army are not                                                                
instructed in the type of prayers they should offer so, in that                                                                 
setting, the prayer is often ecumenical.  He hoped the people                                                                   
offering the prayer consider the congregation before them.                                                                      
                                                                                                                                
Number 336                                                                                                                      
                                                                                                                                
SENATOR ELLIS stated the type of lead-prayer, referred to by                                                                    
Chairman Taylor, when sponsored by the public school system,                                                                    
contradicts the sponsor's statement that silent, unlead-prayer                                                                  
would occur.                                                                                                                    
                                                                                                                                
CHAIRMAN TAYLOR said he was referring to the instances in                                                                       
government institutions today in which a person has to verbalize a                                                              
prayer, and how that person has to make difficult decisions.  He                                                                
doubted that could occur in a school setting.                                                                                   
                                                                                                                                
SENATOR WARD pointed out that silent prayer occurred in Alaskan                                                                 
schools for the year preceding the 1962 decision for the reason                                                                 
that classrooms contained a diverse group of people.  He noted the                                                              
same resolution has been introduced every year in Congress since                                                                
1962.                                                                                                                           
                                                                                                                                
SENATOR DONLEY said, given our court system, he believes a                                                                      
stringent application of the constitutional amendment would be                                                                  
imposed to ensure that prayers are ecumenical and to protect the                                                                
religious beliefs of all denominations.                                                                                         
                                                                                                                                
SENATOR HALFORD moved SJR 25 from committee with individual                                                                     
recommendations.  SENATOR ELLIS objected because he had not had a                                                               
chance to review the copy of the materials before Congress.  The                                                                
motion to pass SJR 25 from committee carried with Senators Halford,                                                             
Donley and Taylor voting "yea," and Senator Ellis voting "nay."                                                                 
                                                                                                                                
                  HB  83-ALASKA SECURITIES ACT                                                                                  
                                                                                                                                
REPRESENTATIVE NORM ROKEBERG, sponsor of HB 83, made the following                                                              
comments.  HB 83 amends the Alaska Security Act to mainline with                                                                
the National Security Marketing Improvement Act.  Alaska has until                                                              
October 1999 to enact HB 83 or it will lose over $4 million in                                                                  
revenue from the registered security industry from program                                                                      
receipts.  Forty states have adopted similar legislation.  The                                                                  
major banking institutions in the state are in agreement with this                                                              
legislation.  HB 83 preempts from registration a new class of                                                                   
securities, called federal covered securities.  Without this                                                                    
legislation, investment advisors and their agents would be totally                                                              
unregulated.  HB 83 has been thoroughly reviewed by three                                                                       
committees already.                                                                                                             
                                                                                                                                
Number 414                                                                                                                      
                                                                                                                                
SENATOR DONLEY asked why Alaska will lose $4 million in revenue if                                                              
HB 83 is not enacted. REPRESENTATIVE ROKEBERG explained the revenue                                                             
is comprised of registration fees from, primarily, the mutual fund                                                              
industry.  Every mutual fund and registered agent must pay a                                                                    
registration fee.                                                                                                               
                                                                                                                                
SENATOR DONLEY asked if that money would come to the state to help                                                              
regulate the industry.  REPRESENTATIVE ROKEBERG replied that is                                                                 
correct.                                                                                                                        
                                                                                                                                
Number 427                                                                                                                      
                                                                                                                                
TERRY ELDER, Director of the Division of Banking, Securities and                                                                
Corporations, Department of Commerce and Economic Development                                                                   
(DCED), informed committee members that HB 83 will bring Alaska                                                                 
into compliance with the National Securities Market Improvement Act                                                             
(NSMIA) which passed in October of 1996.  That Act created federal                                                              
covered securities and federal covered advisors.  NSMIA preempted                                                               
state registration of those but provided that the states, in order                                                              
to be revenue neutral, could continue to collect fees and require                                                               
notice filings for those securities.  The states were given three                                                               
years to bring their securities acts into compliance with federal                                                               
law.  State laws were to cover securities and advisors and could                                                                
continue to require the filing of notices and the payment of fees.                                                              
In Alaska, the fees equal about $4 million.  The Investment Company                                                             
Institute, the major association representing the mutual fund                                                                   
industry, has provided a letter of support for HB 83.  The                                                                      
Institute expects the fees collected to be used to regulate the                                                                 
securities industry, however Alaska, like almost every other state,                                                             
does not spend as much as it collects on regulation. The House                                                                  
passed HB 83 with a unanimous vote as did the Senate Labor and                                                                  
Commerce Committee.  The bill has broad bipartisan support and                                                                  
essentially no opposition.                                                                                                      
                                                                                                                                
Number 452                                                                                                                      
                                                                                                                                
MR. ELDER said because passage of NMSIA required a substantial re-                                                              
write of the Alaska Securities Act, other improvements were made to                                                             
the Alaska Securities Act as well.  First, an accredited investor                                                               
exemption was added to the list of those exempted from                                                                          
registration. The language was drafted by the North American                                                                    
Securities Administrators' Association.  Its purpose is to allow                                                                
Alaskan businesses to use the Small Business Administration's                                                                   
ACENET program which is an electronic matching service.  Second, HB
83 exempts transactions conducted solely within a family.  Third,                                                               
HB 83 contains a provision to allow the division to go to court to                                                              
reduce a fine to a judgment when a final order has been made.  That                                                             
provision will help the division go after out-of-state people who                                                               
cheat Alaskans.  In addition, changes were made to the recision                                                                 
provisions for securities sold without registration.  Under current                                                             
law, one who sells securities in Alaska without registration is                                                                 
liable to the buyer for a period of three years.  The buyer could                                                               
sue for the cost of the securities plus six percent interest per                                                                
year.  The new proposal changes the six percent interest rate to                                                                
eight percent or the stated rate on the note, whichever is less.                                                                
The three year time period remains unless the transaction was                                                                   
fraudulent, in which case an additional two years to sue, from the                                                              
date of which the fraud became known, will be allowed.                                                                          
                                                                                                                                
SENATOR DONLEY asked what the time limit is for an unlicensed sale.                                                             
MR. ELDER replied if the seller is unregistered but the transaction                                                             
is not fraudulent, the time limit is three years.                                                                               
                                                                                                                                
Number 472                                                                                                                      
                                                                                                                                
SENATOR DONLEY asked if an unlicensed person committed fraud, and                                                               
the seller was aware of the fraud when the transaction occurred,                                                                
whether the time period would be two or three years.                                                                            
                                                                                                                                
MR. ELDER replied if an element of fraud can be proved, then the                                                                
longer time period would be appropriate.  He clarified that the                                                                 
bill provides for whichever time period is longer.                                                                              
                                                                                                                                
CHAIRMAN TAYLOR noted the time period is a minimum of three years,                                                              
but if fraud is involved an additional two years would be allowed.                                                              
                                                                                                                                
SENATOR DONLEY asked what types of investment professionals, not                                                                
currently licensed, will be required to get licensed if HB 83                                                                   
passes.  MR. ELDER said no one who is not currently licensed will                                                               
be licensed under this bill.                                                                                                    
                                                                                                                                
SENATOR DONLEY asked if the revenue will be in the form of federal                                                              
funds.  MR. ELDER stated the revenue will come from filing notice                                                               
and registration fees that are collected from the industry.                                                                     
                                                                                                                                
SENATOR DONLEY questioned whether that is current practice, however                                                             
the new federal law removes the state's authority to continue to do                                                             
so without adopting the Uniform Act.  MR. ELDER said that is                                                                    
correct.                                                                                                                        
                                                                                                                                
SENATOR DONLEY asked if the fees will increase.  MR. ELDER said the                                                             
fees are set by state regulation so they can change periodically.                                                               
                                                                                                                                
CHAIRMAN TAYLOR maintained that by regulation, Alaska could                                                                     
increase the notice and registration fees paid by municipal funds,                                                              
and yet it would not have the authority under federal law to                                                                    
enforce those regulations.                                                                                                      
                                                                                                                                
MR. ELDER stated if HB 83 is not enacted, Alaska could adopt a fee                                                              
structure but it would not have the authority to take action if the                                                             
fee was not paid.                                                                                                               
                                                                                                                                
CHAIRMAN TAYLOR pointed out the real policing mechanism is found                                                                
with the citizen's ability to file a civil action against the                                                                   
seller.  He asked if the division has enforcement mechanisms.  MR.                                                              
ELDER replied the division has enforcement mechanisms but federal                                                               
law preempts registration and allows notice filings, but the fact                                                               
that the investment advisor or mutual fund filed a notice makes                                                                 
them subject to Alaska's anti-fraud rules.  Federal law continues                                                               
to give the states authority to investigate fraud.                                                                              
                                                                                                                                
CHAIRMAN TAYLOR announced the committee would take up SB 162.                                                                   
                                                                                                                                
                SB 162-RULE AGAINST PERPETUITIES                                                                                
                                                                                                                                
BETH CHAPMAN, an attorney with the law firm of Faulkner Banfield,                                                               
stated she is testifying on behalf of herself and her colleagues,                                                               
Mary Zemp and Eric Keifner.  They have an extensive practice in                                                                 
trust and estate law, and have seen significant movement in that                                                                
area by the Legislature in the last several years.  SB 162 will                                                                 
make a technical correction to the Alaska Trust Act, adopted on                                                                 
April 2, 1977. That Act effectively repealed the rule against                                                                   
perpetuities, a rule rooted in the common law that prohibits trusts                                                             
from existing for longer than approximately 90 to 110 years.  The                                                               
legislature repealed that rule so that trusts, established pursuant                                                             
to that act, could be created to allow families to pass assets down                                                             
through the generations.  Unfortunately, the Alaska Trust Act did                                                               
not deal with perpetual charitable lead trusts which are                                                                        
established to provide income to a charity for a specified term.                                                                
When the Alaska Trust Act was enacted to repeal the rule against                                                                
perpetuities, it focused on persons living at the time, so it does                                                              
not apply to charities.  She noted people would like to establish                                                               
charitable lead trusts in Alaska but are unable to do so.                                                                       
                                                                                                                                
SENATOR HALFORD asked for a description of a charitable lead trust.                                                             
                                                                                                                                
MS. CHAPMAN explained an individual may establish a trust and                                                                   
choose to pay all of of the trust's income to a charity for the                                                                 
first 20 years.  After 20 years, the money can revert to the                                                                    
grantor or possibly to the grantor's heirs.  Charitable lead trusts                                                             
are established pursuant to the Internal Revenue Code and qualify                                                               
for the charitable deduction.                                                                                                   
                                                                                                                                
SENATOR DONLEY asked if the full value of the trust can be taken as                                                             
a tax deduction.  MS. CHAPMAN answered no, the actuarial value is                                                               
taken as a deduction.                                                                                                           
                                                                                                                                
CHAIRMAN TAYLOR asked if that is because it will be tied up for the                                                             
20 year period.  MS. CHAPMAN said that is correct, and explained                                                                
that the income generated by the trust is deducted because it is                                                                
paid to a charity.                                                                                                              
                                                                                                                                
MS. CHAPMAN pointed out the Alaska Trust Act was established to                                                                 
generate business and make Alaska a favored location for trusts,                                                                
so, while many people have expressed interest in establishing                                                                   
charitable lead trusts in Alaska, they cannot because of the                                                                    
technical problem regarding the rule against perpetuities.                                                                      
                                                                                                                                
CHAIRMAN TAYLOR asked Ms. Chapman to testify on SB 163 while she                                                                
was present.                                                                                                                    
                                                                                                                                
                   SB 163-TRUSTS AND TRUSTEES                                                                                   
                                                                                                                                
MS. BETH CHAPMAN, an attorney with the law firm of Faulkner                                                                     
Banfield, explained that SB 163 is additional trust legislation                                                                 
designed to provide guidance to individuals who are establishing                                                                
trusts, to attorneys who are drafting trusts, and to the courts who                                                             
administer trusts if litigation arises.  Current statute requires                                                               
a trustee to inform and to account to beneficiaries of the trust.                                                               
The term "current beneficiary" is used in statute to refer to who                                                               
is to be notified when a trust is registered, however, that term is                                                             
not defined in statute.  SB 163 defines a "beneficiary" as "a                                                                   
person who sees a mandatory distribution of income or principal                                                                 
from a trust," which is how practitioners throughout the state have                                                             
interpreted that term. The court recently used a different                                                                      
interpretation; an interpretation contrary to the grantor's intent                                                              
when the trust was established.                                                                                                 
                                                                                                                                
MS. CHAPMAN maintained that a statutory definition is needed to                                                                 
limit the beneficiary to someone who receives a mandatory                                                                       
distribution of income or principal because attorneys know who that                                                             
individual is and who the obligation runs to.  The court has                                                                    
interpreted a beneficiary to be any discretionary beneficiary under                                                             
a trust.  That interpretation will require attorneys to locate                                                                  
beneficiaries who never receive any income or corpus of the trust,                                                              
including future unborn heirs.  It is also unclear whether the                                                                  
guardian of a minor has to be notified.  The definition in SB 163                                                               
is designed to provide guidance to the practitioners and to the                                                                 
courts.                                                                                                                         
                                                                                                                                
TAPE 99-29, SIDE B                                                                                                              
                                                                                                                                
MS. CHAPMAN said she has personally been involved in litigation                                                                 
that has focussed on this particular statute, in which the grantor                                                              
established a trust for the benefit of his surviving spouse.  The                                                               
trust was registered and the two children were listed as contingent                                                             
beneficiaries to receive the corpus when the surviving spouse                                                                   
passed away.  The children were not notified of the existence of                                                                
the trust, which is consistent with the interpretation used by                                                                  
practitioners throughout the state.  Years later, a lawsuit ensued,                                                             
and the court decided the trustee had breached her obligation by                                                                
not notifying the discretionary beneficiary. When the discretionary                                                             
beneficiary was notified, a lengthy lawsuit ensued, and the trustee                                                             
was stripped of her obligations for doing what every practitioner                                                               
considered to be the proper interpretation of the statute.                                                                      
However, the court disagreed.                                                                                                   
                                                                                                                                
SENATOR DONLEY asked whether the children had a survivor or                                                                     
immediate interest in the trust.                                                                                                
                                                                                                                                
MS. CHAPMAN answered they had a survivor interest, therefore the                                                                
trust could have been expended entirely for the benefit of the                                                                  
surviving spouse which is a typical estate planning technique.                                                                  
                                                                                                                                
CHAIRMAN TAYLOR pointed out the children had an expectancy: first                                                               
they had to out-live the primary beneficiary, and then the trust                                                                
had to contain enough money to make it worthwhile.                                                                              
                                                                                                                                
MS. CHAPMAN said that is correct.  She explained in this instance,                                                              
one of the children went to court and argued that the money was                                                                 
improperly expended for the benefit of the surviving spouse.  That                                                              
caused family disharmony and expensive and lengthy litigation.  She                                                             
repeated the court needs guidance in the area of notification of                                                                
beneficiaries.                                                                                                                  
                                                                                                                                
SENATOR DONLEY asked what guidance Ms. Chapman is proposing.  MS.                                                               
CHAPMAN replied she is proposing that the current beneficiary be                                                                
defined as a person entitled to a mandatory distribution of income                                                              
or principal from a trust.                                                                                                      
                                                                                                                                
SENATOR DONLEY said that proposal cuts out the children.  MS.                                                                   
CHAPMAN clarified only for the purpose of notification when the                                                                 
trust is established.                                                                                                           
                                                                                                                                
SENATOR DONLEY asked Ms. Chapman if she believes the children                                                                   
should know.  MS. CHAPMAN said she does not.                                                                                    
                                                                                                                                
SENATOR DONLEY said he totally disagrees because the children have                                                              
a survivor's expectation of preservation of the corpus, and they                                                                
ought to be involved depending on how it is written.  MS. CHAPMAN                                                               
said the problem is that most trusts are written to give the                                                                    
surviving spouse sole discretion.  A person with a mere expectancy                                                              
can cause the grantor's intent to be undermined when the contingent                                                             
beneficiaries are notified that the trust has been established and                                                              
a conflict ensues.                                                                                                              
                                                                                                                                
SENATOR DONLEY maintained SB 163 is designed to make things simple                                                              
for trust lawyers and to get around the intent of the grantors.  He                                                             
pointed out the only reason a trust like that is created is to                                                                  
benefit the children in the long run while maintaining support of                                                               
the spouse for his/her lifetime.  He stated the corpus should be                                                                
preserved, otherwise the grantor would not bother to create a                                                                   
trust, he/she would bequest the entire amount to the spouse.                                                                    
                                                                                                                                
MS. CHAPMAN responded some trusts are set up for that purpose, but                                                              
the majority of trusts are bypass trusts that are not set up for                                                                
the preservation of the corpus for the children.  They are designed                                                             
primarily and solely for the benefit of the surviving spouse and                                                                
are used as an estate tax savings device.                                                                                       
                                                                                                                                
Number 542                                                                                                                      
                                                                                                                                
MS. CHAPMAN discussed additional aspects of SB 163, relating to the                                                             
rules regarding modification and revocation of trusts.  At present,                                                             
Alaska has no statutory provisions regarding modification or                                                                    
termination of trusts.  The courts must look to the common law.  SB
163 will allow the court to modify or terminate trusts under                                                                    
certain stated rules.  Many times, trusts need to be modified                                                                   
because of unexpected events that arise after the trust is                                                                      
established, particularly in cases in which a trust was established                                                             
for estate tax savings or for the care of minor children.  For                                                                  
example, a minor child may become disabled and unable to handle the                                                             
trust when he/she comes of age, however, under current law, the                                                                 
trust cannot be modified.  SB 163 will allow the court to modify                                                                
trusts if consistent with the grantor's intent.                                                                                 
                                                                                                                                
SENATOR DONLEY asked whether Section 2 applies to all kinds of                                                                  
trusts.  MS. CHAPMAN answered Section 2 applies to all trusts.                                                                  
                                                                                                                                
SENATOR DONLEY said he cannot support this legislation.                                                                         
                                                                                                                                
Number 524                                                                                                                      
                                                                                                                                
CHAIRMAN TAYLOR discussed a scenario in which a couple set up a                                                                 
trust naming the surviving spouse as the beneficiary.  The couple                                                               
established the trust to avoid probate, and with the intent that                                                                
the surviving spouse would use the money to live on, and that any                                                               
remaining money, if any, would be split among the children after                                                                
the spouse's death.  If each spouse has stepchildren, the family is                                                             
set up for immediate litigation under current law.  The                                                                         
stepchildren's expectancy might lead them to dictate how the                                                                    
surviving spouse spends his/her money.  He said he would hate to                                                                
see a child be able to sue a parent over what should be left in the                                                             
estate.                                                                                                                         
                                                                                                                                
MS. CHAPMAN said that is what happened in the case she referred to                                                              
earlier.                                                                                                                        
                                                                                                                                
CHAIRMAN TAYLOR pointed out if a trust was set up assuring the                                                                  
children a percentage of the estate, the children would be a                                                                    
mandated beneficiary and would have to receive notification.  If a                                                              
trust is not set up in that manner, the children are given an                                                                   
expectancy only.                                                                                                                
                                                                                                                                
MS. CHAPMAN said the beneficiaries who have the expectancy are not                                                              
prevented from suing.  SENATOR DONLEY indicated the beneficiaries                                                               
should not be prevented from knowing about the trust.  The problem                                                              
is that notification for all trusts will be wiped out based on one                                                              
case.  He noted Section 2 is not targeted toward the problem                                                                    
identified in that case; it will undo notification for people who                                                               
reasonably should be notified and who should have a reasonable                                                                  
expectation of survival of the corpus.                                                                                          
                                                                                                                                
MS. CHAPMAN repeated a current beneficiary who is entitled to a                                                                 
mandatory distribution will receive notice.                                                                                     
                                                                                                                                
SENATOR DONLEY said Ms. Chapman is anticipating that the spouses                                                                
will write the children in as co-beneficiaries, which they do not                                                               
tend to do even though they do intend that the corpus survive.  He                                                              
repeated he disagrees with this policy.                                                                                         
                                                                                                                                
SENATOR DONLEY noted one has to have an estate valued at $650,000                                                               
before taxes become a problem and suggested that estates below that                                                             
value be excluded.                                                                                                              
                                                                                                                                
CHAIRMAN TAYLOR maintained $650,000 is below the value of the                                                                   
average person's house on the hillside.                                                                                         
                                                                                                                                
SENATOR DONLEY contended this bill will make life easy for tax                                                                  
lawyers and that it would be much more fair to include a provision                                                              
allowing the grantor to specify the potential beneficiaries and to                                                              
waive the notification requirement within the trust document.  He                                                               
repeated Section 2 goes too far.                                                                                                
                                                                                                                                
Number 449                                                                                                                      
                                                                                                                                
MARY ZEMP, an attorney with Faulkner Banfield, clarified that lack                                                              
of notification does not mean a beneficiary cannot get information                                                              
because trusts must be registered and anyone can look at the court                                                              
record.  In the particular litigation referred to by Ms. Chapman,                                                               
MS. ZEMP explained the father, who set up the trust for his wife,                                                               
specifically stated it was not his intent to preserve the trust for                                                             
the benefit of the remainderman.  Also, the trust specifically said                                                             
the trustee did not need to account to anyone other than the                                                                    
surviving spouse. His daughter sued and each client spent at least                                                              
$200,000 in legal fees.                                                                                                         
                                                                                                                                
SENATOR DONLEY said we should make that the law rather than cutting                                                             
everyone out from the notification requirement.                                                                                 
                                                                                                                                
MS. ZEMP said the trust may say the opposite.                                                                                   
                                                                                                                                
CHAIRMAN TAYLOR asked how one is to know who the potential                                                                      
beneficiaries could be and how they are to be notified.                                                                         
                                                                                                                                
SENATOR DONLEY replied a lot of them will be known up front, but                                                                
the law can be written so that the trustee must use his/her best                                                                
effort.                                                                                                                         
                                                                                                                                
CHAIRMAN TAYLOR asked at what point the beneficiaries must be                                                                   
notified.  MS. ZEMP replied when the trust is established, Alaska                                                               
law requires that the trust be registered and that notification of                                                              
registration be sent to current beneficiaries.  Alaska trusts can                                                               
be established for ten generations.  Determining whether one made                                                               
a reasonable effort will give rise to litigation.                                                                               
                                                                                                                                
SENATOR DONLEY repeated that the law should require that the person                                                             
setting up the trust specify whether the purpose is to save the                                                                 
corpus for future beneficiaries, such as children.                                                                              
                                                                                                                                
Number 408                                                                                                                      
                                                                                                                                
DAVE SHAFTEL, a member of an informal group of estate planning and                                                              
business attorneys in Anchorage, made the following comments.  His                                                              
group has participated in the drafting of SB 162, and is strongly                                                               
in favor of it, particularly the rule against perpetuities issue.                                                               
The rule was essentially abolished in previous legislation yet some                                                             
technical remnants remain, making the elimination of the rule                                                                   
awkward.  One example is with a charitable lead trust, a second                                                                 
example is with trusts for children.  SB 162 will clarify the                                                                   
abolishment of the rule.  The purpose of SB 163 is to provide a                                                                 
statutory provision that allows for the reformation or termination                                                              
of trusts where their purposes are not being met.  Sometimes the                                                                
intent of the person who created the trust cannot be met due to                                                                 
mistake of facts, mistake of law, or changed circumstances.  In                                                                 
such cases, the trust needs to be changed.  Many other states have                                                              
similar legislation.  These provisions track the restatement of                                                                 
trust and the Uniform Trust Act.  He stated SB 163 will establish                                                               
good, solid law for the State of Alaska.                                                                                        
                                                                                                                                
MR. SHAFTEL suggested, if the committee continues to have concerns                                                              
about the notification issue, the burden should be placed on the                                                                
party who drafted the trust to state, with an introductory phrase,                                                              
that unless the trust instrument states otherwise, the duty to                                                                  
inform and account applies.  That would allow the person who sets                                                               
up the trust, at the time it is drafted, to say he/she does not                                                                 
want to put the burden to inform contingent beneficiaries or                                                                    
remainder persons of the trust's registration.  Current statute                                                                 
provides that notification is a mandatory obligation so one cannot                                                              
draft around it.  He noted the mandatory requirement places a                                                                   
tremendous administrative burden on trustees and a way needs to be                                                              
found to alleviate that burden if the trustor so chooses.                                                                       
                                                                                                                                
Number 345                                                                                                                      
                                                                                                                                
CHAIRMAN TAYLOR thanked Mr. Shaftel and asked him to contact                                                                    
Senator Donley directly with his suggestions.                                                                                   
                                                                                                                                
Number 338                                                                                                                      
                                                                                                                                
RICH HOMPESCH, a Fairbanks attorney, said he agrees with the                                                                    
comments of previous speakers about SB 162 and SB 163.  He directed                                                             
his comments to Section 2, regarding the duty to account.  He has                                                               
drafted many trusts since the Alaska Trust Act passed two years                                                                 
ago.  Most of his clients tell him they do not want the trustee to                                                              
go to the expense of notifying all of the beneficiaries of the                                                                  
trust.  Most clients only want the trustee to notify and account to                                                             
the individual who is receiving the current income and corpus.                                                                  
When he informs his clients of the statute's mandate regarding                                                                  
notification, it causes a lot of problems.  As written, Section 2                                                               
contemplates that unless the trust otherwise specifies, the rule                                                                
requiring that all beneficiaries be notified applies.                                                                           
                                                                                                                                
CHAIRMAN TAYLOR asked Ms. Chapman if any judgment was rendered when                                                             
the case she referred to was settled.  He questioned whether that                                                               
case will set precedent.                                                                                                        
                                                                                                                                
MS. CHAPMAN replied it is not precedential.  No judgment was                                                                    
rendered in that case; interlocutory orders were issued.                                                                        
                                                                                                                                
CHAIRMAN TAYLOR said the judge stepped out on a very thin reed and                                                              
does not realize the impact that type of decision may have across                                                               
the board on all kinds of documents.  MS. CHAPMAN said she agrees,                                                              
and that the judge may have understood the ramifications after                                                                  
having then seen how far that litigation continued on before it                                                                 
finally settled.  She stated she does believe Senator Donley's                                                                  
concerns can be addressed with language allowing the grantor to                                                                 
except the trustee from the mandatory requirement of notification.                                                              
                                                                                                                                
CHAIRMAN TAYLOR said that would be far superior to what Mr.                                                                     
Hompesch said people are now doing, that is drafting trust                                                                      
documents that hold the trustee harmless from lack of enforcement                                                               
of the law.                                                                                                                     
                                                                                                                                
Number 271                                                                                                                      
                                                                                                                                
CHAIRMAN TAYLOR asked those interested in seeing this legislation                                                               
move to talk to Senator Donley about his concerns, and to update                                                                
Senators Torgerson and Halford as well.  He hoped to get a quorum                                                               
on Wednesday.  He thanked all participants for their input and                                                                  
adjourned the meeting at 3:20 p.m.                                                                                              

Document Name Date/Time Subjects