Legislature(2003 - 2004)
04/14/2003 01:01 PM Senate JUD
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* first hearing in first committee of referral
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ALASKA STATE LEGISLATURE
SENATE JUDICIARY STANDING COMMITTEE
April 14, 2003
1:01 p.m.
MEMBERS PRESENT
Senator Ralph Seekins, Chair
Senator Scott Ogan, Vice Chair
Senator Gene Therriault
Senator Johnny Ellis
Senator Hollis French
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
SENATE BILL NO. 87
"An Act relating to principal and income in the administration
of trusts and decedents' estates and the mental health trust
fund; adopting a version of the Uniform Principal and Income
Act; and providing for an effective date."
MOVED SB 87 OUT OF COMMITTEE
SPONSOR SUBSTITUTE FOR SENATE BILL NO. 41
"An Act relating to medical care and crimes relating to medical
care, including medical care and crimes relating to the medical
assistance program."
MOVED CSSSSB 41(JUD) OUT OF COMMITTEE
SENATE BILL NO. 163
"An Act relating to trusts, including trust protectors, trustee
advisors, transfers of property in trust, and transfers of trust
interests, and to creditors' claims against property subject to
a power of appointment."
MOVED CSSB 163(JUD) OUT OF COMMITTEE
CS FOR HOUSE BILL NO. 64(JUD)
"An Act relating to court approval of the purchase of structured
settlements."
MOVED CSHB 64(JUD) OUT OF COMMITTEE
SENATE BILL NO. 170
"An Act relating to the Code of Criminal Procedure; relating to
defenses, affirmative defenses, and justifications to certain
criminal acts; relating to rights of prisoners after arrest;
relating to discovery, immunity from prosecution, notice of
defenses, admissibility of certain evidence, and right to
representation in criminal proceedings; relating to sentencing,
probation, and discretionary parole; amending Rule 16, Alaska
Rules of Criminal Procedure, and Rules 404, 412, 609, and 803,
Alaska Rules of Evidence; and providing for an effective date."
SCHEDULED BUT NOT HEARD
PREVIOUS ACTION
SB 87 - No previous action to be considered.
SB 41 - See HESS minutes dated 2/26/03 and 3/12/03.
SB 163 - No previous action to consider.
HB 64 - See Labor and Commerce minutes dated 3/27/03 and 4/3/03.
WITNESS REGISTER
Mr. Brian Hove
Staff to Senator Seekins
Alaska State Capitol
Juneau, AK 99801-1182
POSITION STATEMENT: Introduced SB 87 for the sponsor.
Mr. David Shaftel, Atty.
550 W 7th Ave.
Anchorage AK 99510
POSITION STATEMENT: Testified on SB 87.
Mr. Rich Hompesch, Atty.
119 N. Cushman, Suite 400
Fairbanks AK 99701
POSITION STATEMENT: Testified on SB 87 and SB 163.
Mr. Steve Greer, Atty.
Anchorage AK 99510
POSITION STATEMENT: Testified on SB 87 and SB 163.
Mr. Peter Brautigam, Atty.
Hoge and Lekisch
Anchorage AK 99510
POSITION STATEMENT: Testified on SB 87 and SB 163.
Mr. Jonathan Blattmachr, Atty.
No address provided
POSITION STATEMENT: Testified on SB 87 and SB 163.
Senator Lyda Green
Alaska State Capitol
Juneau, AK 99801-1182
POSITION STATEMENT: Sponsor of SB 41.
Ms. Traci Carpenter
Staff to Senator Green
Alaska State Capitol
Juneau, AK 99801-1182
POSITION STATEMENT: Provided explanation on SB 41
Mr. Don Kitchen, Assistant Attorney General
Director, Division of Medicaid Fraud
Department of Law
PO Box 110300
Juneau, AK 99811-0300
POSITION STATEMENT: Commented on SB 41.
Mr. Steve Branchflower, Director
Alaska Legislature
Office of Victims' Rights
1007 West 3rd Avenue, Suite 205
Anchorage, Alaska 99501-1936
POSITION STATEMENT: Commented on SB 41.
Mr. Jack Neilson, Assistant Attorney General
Department of Law
PO Box 110300
Juneau, AK 99811-0300
POSITION STATEMENT: Commented on SB 41.
Mr. Doug Blattmachr
Alaska Trust Company
POSITION STATEMENT: Testified on SB 163.
ACTION NARRATIVE
TAPE 03-21, SIDE A
CHAIR RALPH SEEKINS called the Senate Judiciary Standing
Committee meeting to order at 1:01 p.m. Present were Senators
Ogan, French and Chair Seekins. Senator Therriault arrived
shortly thereafter. The Chair announced SB 87 to be up for
consideration.
SB 87-PRINCIPAL AND INCOME
MR. BRIAN HOVE, staff to Senator Seekins, explained that SB 87
updates the Principal and Income Act of 1984. It provides rules
for the determination of whether trust or estate receipts should
be considered income or principal.
CHAIR SEEKINS said this bill would bring Alaska to the very
cutting edge of how trusts can be managed to give more
flexibility to the trustee. He noted the summaries from legal
services that would be useful for the committee to read.
MR. DAVID SHAFTEL said he is part of an informal group of
attorneys and trust officers that have spent the last six years
working to improve trust and estate statutes for Alaska
residents primarily, but also for non-residents that want to use
Alaska law in their estate planning. He pointed out that other
states have actually copied Alaska statute. SB 87 is Alaska's
version of the 1997 Uniform Principal and Income Act that was
adopted in 1962. The 1997 version has been enacted by about 30
other states and five other states are pending. This version is
modeled after the Pennsylvania version.
The new version adds a modern business entity tax investment
concept to the 1962 act. One of the general problems in the
principal and income area is that often trusts have been
designed so that the income of the trust would be paid out to an
income beneficiary(s) and the principal of the trust would go to
other beneficiaries at a later point. However, there is a built-
in conflict with that type of a structure. The trustee gets
pressure from the income beneficiaries to invest in income
producing assets and also gets pressure from the remainder
persons to invest in equity assets that will grow the remainder
and hold down what is distributed as income.
The new version enacts several remedies to this problem. The
first is "the power to adjust," which allows the fiduciary to
invest the assets of a trust to maximize the total return. If
too little income is produced because of this process, the
fiduciary has the power to adjust by taking some of the
principal and allocating it as income.
The second remedy is to convert an income producing trust to a
modern type of trust called a unitrust. A unitrust doesn't
simply pay out the income earned because it defines income as a
percentage of the total assets of the trust as it is valued each
year. That percentage can be varied if the trustee goes to court
and asks for approval for a different percentage; a beneficiary
can do the same. Four percent is considered a neutral amount
that would allow growth of the principal and also provide a
larger distribution to the income beneficiary.
SENATOR ELLIS arrived at 1:12 p.m.
SENATOR THERRIAULT asked if the unitrust uses a percentage
market valuation methodology.
MR. SHAFTEL replied that is correct.
SENATOR THERRIAULT asked how moving principal to income would be
overseen.
MR. SHAFTEL replied the concept is that if there is a strong
equity market, the trustee could get a better overall return for
both the income beneficiaries and the remaining persons by
investing the entire estate in equities. The equities could grow
in one year, but it would all be unrealized growth with no
income. The trustee would set a fair percentage for distribution
to the income beneficiaries as income. Certainly, the
beneficiary has the discretion to review.
SENATOR THERRIAULT asked if the income beneficiary would have to
sell the equity instrument to realize the income.
MR. SHAFTEL replied yes.
SENATOR OGAN said the new language on page 2, line 1, "Shall
administrate a trust or estate in accordance with the governing
instrument even if there is a different provision in this
chapter." looks like a blank check.
MR. SHAFTEL explained many of the provisions are default
provisions and allow the leeway for the person creating the
trust to draft it with different rules. The default rules are
designed by the Uniform Commissioners to answer questions that
haven't been answered in the trust instrument; it's not that
there would be abuse.
SENATOR OGAN said language on page 2, lines 6 - 8, is more
troublesome. It reads: "An inference that the fiduciary has
improperly exercised the discretionary power does not arise from
the fact that the fiduciary has made an allocation contrary to
the provision of this chapter."
That appears to mean that if someone accuses a fiduciary of
improperly exercising the power that's contrary to this chapter,
they are not guilty.
MR. SHAFTEL explained they are saying your trust allows for
different rules and discretion is exercised under those
different rules. The mere fact that there's a Uniform Act that
provides the rules does not establish that your trustee
following the rules in your trust has abused his or her
discretion. It goes back to the default concept that we're going
to provide reasonable rules it you don't have any.
This bill has one subject that deals with the tension between
income and principal beneficiaries and the other provisions deal
with a variety of different kinds of receipts and disbursements
and provide default rules.
MR. RICH HOMPESCH, trust and estate attorney, expressed support
for SB 87 and agreement with Mr. Shaftel's testimony.
MR. STEVE GREER, attorney stated support for SB 87. He said the
current act governs wills and this legislation would establish
rules governing revocable trusts. This is needed because the
nationwide trend is to use revocable trusts in estate planning.
MR. PETER BRAUTIGAM a trust and estate attorney supported SB 87
saying this has been long overdue.
MR. JONATHAN BLATTMACHR said he is a member of the Alaska,
California and New York Bars and practices primarily in New
York, but does a fair amount of practice in Alaska as co-
counsel. He supports SB 87 describing it as a much more flexible
act that has been designed to coincide with the modern theory of
portfolio management.
SENATOR THERRIAULT motioned to pass SB 87 from committee with
individual recommendations. There was no objection and it was so
ordered.
SSSB 41-MEDICAL CARE: CRIMES,COSTS,AUDITS
CHAIR SEEKINS announced SB 41 to be up for consideration.
SENATOR LYDA GREEN, sponsor of SB 41, said the cost of the
Medicaid program has risen at an average rate of 11 percent per
year since 1999. Alaska's Medicaid Program has averaged annual
increases of 20 percent, which is more than $100 million per
year and brings the total projected FY 04 program costs to just
under $1 billion in federal and state funds. Factors such as
increased enrollments, increased use of health services and the
increasing cost of pharmaceuticals and long term care are the
greatest contributors to the rise in Medicaid Program costs. The
state has limited ability to contain those costs, but they can
help the program integrity by targeting waste and fraud.
Nationally, the error rate of overpayments in the Medicare
Program is seven percent. There is also the commonly held
perception that fraud committed against the Medicaid Program
nationwide amounts to ten percent. Whether those numbers are
inclusive or not, it accounts for spending of $70 to $170
million. She asked for rigorous controls and frequent scrutiny.
She said that Alaska has no specific health care criminal theft
statutes. Currently, in order to prosecute those who commit
Medicaid fraud, prosecutors must use criminal statutes related
to actions coincidental to the misconduct. You must prove the
conduct was intentional, which is a very high standard to meet
for a crime where there is no crime scene or physical evidence.
Consequently, there have been few prosecutions.
SB 41 provides the legal tools for the fiduciaries of the
Medicaid Program to establish program integrity and maintain
maximum fiscal control. It establishes a crime of medical
assistance fraud; defines the elements that constitute the
fraud; and classifies the crime committed as either a felony or
misdemeanor. It requires independent financial audits to
identify errors, overpayments and criminal violations made to or
by Medicaid providers and requires administrative action within
90 days of each audit. It completes the loop between the
Department of Health and Social Services (DHSS) and the
Department of Law (DOL) by requiring copies of all audits to be
provided to the attorney general and directing him or her to
notify DHESS of any charges of misconduct filed against a
Medicaid provider. Such notice requires the department to
undertake a complete review of any outstanding claims of that
provider. Finally, SB 41 provides that financing of the audits
may be made from the recovery due to the audits of misspent
funds.
SENATOR GREEN said that recommendation 12 from the Division of
Legislative Audit states, "The Legislature should consider
adopting a specific criminal statute related to Medicaid fraud
to enhance the Medicaid Fraud Control Unit's effectiveness."
Recommendation 7 of the same audit states, "DMA's director
should provide for a full-time on-going service provider audit
function."
It's vital that the State of Alaska administer its
Medicaid Program in a manner that insures effective
long-term cost containment while providing needed
medical care to its intended recipients.
She said they must operate honestly, responsibly and in
accordance with the law.
SENATOR OGAN asked why there "shall" be annual audits instead of
"may".
SENATOR THERRIAULT motioned to adopt CSSSSB 41, version \S.
SENATOR ELLIS objected for an explanation of the CS.
MS. TRACI CARPENTER, staff to Senator Green, explained that
version S has the same elements as version Q, but changes the
title, defines medical purpose in section 1 to provide a
prosecutor the tools to use in court and adds a definition of
practitioner, which is already in statute.
SENATOR ELLIS asked why it's necessary to define medical
purpose.
MR. DON KITCHEN, Assistant Attorney General and director of
Medicaid Fraud in Alaska, answered that he did not write that
section, but he understands that it was written during a court
trial when the jury needed a definition. He thought Mr.
Branchflower was the author.
MR. STEVE BRANCHFLOWER, Director, Office of Victims' Rights,
explained that there is no definition of medical purpose in
statute right now and when someone writes a prescription there
is a requirement that it be based on the existence of medical
necessity. Absent the medical necessity, the person that
prescribes is subject to criminal prosecution. If it is found
that the doctor lacks the requisite medical necessity, he or she
can be prosecuted under our drug laws. The problem he had when
he prosecuted doctors for violating drug laws is that the
defense would always assert that there was a medical purpose and
much of the trial would be spent on "a battle of the experts"
trying to define it.
1:45 p.m.
SENATOR ELLIS said he is concerned with over-prescribing drugs
in Alaska and asked if anything else in the CS helps with this
problem.
MR. BRANCHFLOWER explained that the language on page 3 is
probably the most important part of the statute dealing with
prescription fraud from a theft standpoint. Previously he was
commenting on cases where practitioners are prosecuted for
violations of the drug laws of the state, but it's also possible
to prosecute the same practitioners for a theft related offense.
That would be two counts.
TAPE 03-21, SIDE B
MR. BRANCHFLOWER said the medical necessity definition is key as
well as the medical assistance fraud section. Alaska is the only
state that has no criminal statutes specific to the prosecution
of health care practitioners.
SENATOR ELLIS asked if other states had done other things that
could fit within this legislation in terms of prescription pads
and tracking that could help with what he believes is a fairly
significant ongoing criminal activity.
MR. BRANCHFLOWER said it is a problem and this bill is a very
good start. There are employees within the Division of Medical
Assistance who could assist prosecutors in identifying
prescribing practitioners and it would be a matter of permitting
the investigators to sit during Drug Utilization Review
Subsystem (DURS) meetings, which he thought the audit suggested
doing.
SENATOR ELLIS removed his objection and the CS was adopted.
SENATOR OGAN reiterated his question about using "shall" and not
"may" for annually contracting independent audits.
SENATOR GREEN replied the audit function is incredibly important
and has to be repeated although it is cumbersome. The "shall"
language means it is required and they will continue and there
will be follow up.
SENATOR OGAN asked why there is a fiscal note since the recovery
is indicated to be more than the cost of the program. He also
questioned whether it would go into the general fund.
SENATOR GREEN replied the language in the bill says that enough
money could be appropriated to do the next year's audit. She
thought it would be better than a wash.
SENATOR ELLIS asked if there was anything in the bill that went
beyond the effort to contain medical fraud, because his reading
of section 4 on page 7 gives him pause. He wanted to know what
she wanted to accomplish with that section by using the word
"seek" rather than "receive."
SENATOR GREEN replied the department couldn't be held to be
responsible for an individual to receive a service they have not
sought.
SENATOR ELLIS asked if that was a problem in the past.
MR. JACK NEILSON, Assistant Attorney General, said that language
means that the recipient is supposed to seek only the medical
care they need under the Medicaid Program. Some recipients might
want a free trip to Seattle or something like that.
SENATOR ELLIS said he feels the intent language is pretty
subjective. He asked what would happen to a person who was dying
of cancer and was looking for other drugs or something beyond
chemotherapy. Would they be more likely to be accused or
convicted of Medicaid fraud if they were more aggressive in
their concern about their personal care?
MR. NEILSON replied, "Most certainly not."
SENATOR OGAN asked if this language targeted people who used the
emergency room to get Tylenol.
MR. NEILSON said this could be used in that instance.
SENATOR OGAN asked if this was aimed at providers mostly.
MR. NEILSON replied his understanding is that the Legislature
felt recipients should be clear about what medical assistance
they are seeking.
SENATOR ELLIS asked if the fiscal note anticipated any increase
in Medicaid fraud investigators.
SENATOR GREEN replied they would contract with an outside
attorney to do part of the legwork.
SENATOR ELLIS said he feels they will find a lot of new cases
and if there aren't new investigators he questioned whether they
wouldn't fall behind.
SENATOR GREEN said she didn't really know since the division was
in the middle of reorganization. Many of the audits would be
paper audits, which would require backup and substantiation of
services, etc.
MR. BRANCHFLOWER added the Medicaid Fraud Control Unit currently
has three investigator positions and two of those are filled.
The third position is funded, but it is vacant. The unit has 75
percent federal funding and a 25 percent state match. So, the
increased leads these audits are expected to find will result in
the filling of the third position.
SENATOR THERRIAULT motioned to pass CSSSSB 41(JUD), version \S,
from committee with individual recommendations. Senator Ellis
objected to establish that the language in the purpose section
is not intended and wouldn't lessen someone's ability if they
meet the federal and state requirements to participate in the
Medicaid plan and that they are just trying to establish that
people should seek appropriate care.
SENATOR GREEN said that was correct.
SENATOR ELLIS asked if the medical groups in the state expressed
support of the bill.
SENATOR GREEN said she received very little response.
SENATOR ELLIS said he was a little concerned about that as he
would hate to see this effort undercut at some point, because
they weren't aware of this.
SENATOR ELLIS removed his objection and CSSSSB 41(JUD) moved
from committee.
2:18 - 2:23 p.m. - at ease
SB 163-POWERS OF APPOINTMENTS/TRUSTS/CREDITORS
CHAIR SEEKINS announced SB 163 to be up for consideration.
SENATOR THERRIAULT motioned to adopt CSSB 163(JUD), version \I.
There was no objection and it was so ordered.
MR. BRAIN HOVE, staff to Senator Seekins, said this dovetails
with SB 87.
In 1997, legislation was passed making Alaska one of
the best trust jurisdictions nationwide. This
legislation made two significant changes to existing
law. First, it provided that an individual could set
up a trust and have the trust as long as the family
wanted. This is known as a perpetual trust. Secondly,
it provides that an individual could set up a trust
where he or she could be a beneficiary and have the
trust's assets protected from future creditors. This
is known as a self-settled spendthrift trust. Over the
last six years, the states of Delaware, Rhode Island
and Nevada have not only adopted similar legislation,
but also incorporated improvements to certain
provisions. Idaho and South Dakota have also added
features to their general trust laws that now make
them comparatively advantageous. SB 163 places Alaska
trust legislation back on an equal footing with these
states. Additionally, SB 163 codifies a number of
matters that have been accepted by Alaska trust
practitioners, as being the common law of the state
for which there has been no statutory counterpart.
Overall, these changes are designed to keep Alaska as
the premier trust jurisdiction, thereby, not only
retaining financial resources in state, but also
continuing to attract non-resident trust assets to
Alaska.
MR. JON BLATTMACHR said he is the one that originally suggested
the legislation to allow the United States and Alaska in
particular to capture business that was going to off-shore
jurisdictions and to create trusts that last as long as the
family wants. He emphasized how extraordinarily successful this
legislation has been for the State of Alaska. SB 163 would help
Alaska catch up and in certain cases, surpass similar
legislation enacted in some other states.
MR. DOUG BLATTMACHR, Alaska Trust Company, supported the
statements his brother made adding that this helps fine-tune
what they have already done and brings Alaska to the forefront
of being a premier jurisdiction. The legislation that has passed
has brought significant business to Alaska. They typically have
$20 million to $30 million on deposit with local banking
institutions. In 2001, over $700,000 additional life insurance
premium tax dollars came to the state and they estimate about
$500,000 came in this year from his institution alone.
MR. STEVE GREER said this bill has been two years in the making
and articulates what they believe the common law to be. It
clarifies some of the ambiguity that the original legislation
has and incorporates some Delaware provisions.
MR. SHAFTEL said he also supports SB 163 and that this vehicle
has been accepted and used widely by Alaska residents.
MR. PETER BRAUTIGAM said this legislation that they have all
worked on since 1997 has been beneficial to all of their clients
in Alaska that do estate planning.
MR. RICH HOMPESCH said he also supports SB 163 for all the
reasons mentioned.
MR. JOHN MAINE, Director, Division of Child Support Enforcement,
said he was concerned about how they could enforce child support
with regard to trusts. They hope this language does not hinder
their ability to collect child support.
SENATOR ELLIS asked if he didn't understand the bill well enough
to know if it would hinder child support enforcement as it
relates to trusts.
MR. MAINE explained that revocable trusts are something they
have had to learn to live with and they have dealt with them in
three or four cases. He said they removed the word "primary" on
page 3, line 12, and the division could probably work with
language about showing intent to defraud child support.
SENATOR THERRIAULT said that language attracted a lot of
attention when the bill passed originally.
MR. GREER explained that page 3, line 12 [indisc].
TAPE 03-22, SIDE A
SENATOR ELLIS asked if the trust protection is new.
MR. GREER said the language didn't add anything. They just
wanted to clarify that if there is intent to defraud a creditor,
that transfer can be set aside.
SENATOR ELLIS asked for a comparison in layman's terms of what a
trust protector, a trustee advisor, and a trustee would be. He
asked whether trust protectors are something new that they are
adding to the statute.
MR. DOUG BLATTMACHR replied yes, they are adding that to the
statute, but it's something that is being used quite
extensively. About 99 percent of their trusts use the trust
protector concept. It's only there if the person setting up the
trust wants to put in a trust protector and that is usually a
trusted friend or advisor. They can remove the trustee if they
don't think he is performing the job properly or for any number
of other reasons without going to court.
SENATOR FRENCH asked if these are called asset protection
trusts.
MR. BLATTMACHR replied that the first piece of legislation was
done for two primary reasons.
To allow trusts to last more than the rule against
perpeties, which is about 80 years, because some
people want to continue a trust for a longer period of
time for tax and non-tax reasons.
The main reason we wanted to provide for these, what's
called self settled spendthrift trusts, is where you
can be a beneficiary and not have the asset attached
by future creditors. We wanted to encourage people to
make lifetime transfers...Right now, under the federal
tax code, everybody has a million dollars that if
their estate, if they die with less than a million
dollars, doesn't pay any tax. Well, you can use that
during your lifetime. So, many times people will have
come to planners and say, 'You know, when we die, our
children have to pay a fairly significant estate tax.
What can we do?'
They may have $4 million and indicate that they live well below
their means and they don't need all this money and they can
transfer that to their children today and get all the
appreciation out of the estate. So, if they transfer a million
dollars, in 20 years at historical rates you're going to have
probably close to $8 million additional in your estate to be
taxed. If you kept it, your heir would pay about $4 million in
tax.
MR. BLATTMACHR said he wanted to encourage people to transfer
money to their heirs, but they might transfer too much and
actually need to have some money back. A beneficiary feels more
comfortable making the transfer knowing that if he needs it, he
can go back to the trustee. A lot of people who set up these
trusts for legitimate reasons are coming back to the U.S.
jurisdiction because they don't have to go off-shore to
legitimately accomplish what they want to accomplish.
SENATOR FRENCH asked if Alaska had ever adopted the FTA, Uniform
Fraudulent Transfer Act.
MR. GREER replied they have not adopted the act.
SENATOR THERRIAULT said the trust protector is new to statute,
but not new to the state.
MR. DOUG BLATTMACHR said they have encouraged the use of a trust
protector. "We think that if we can't keep the beneficiaries
happy, we probably don't want the relationship anyway."
SENATOR FRENCH asked if this bill adds any protection for
creditors.
MR. BLATTMACHR replied that it just clarifies some things - like
what is an existing creditor and what isn't.
MR. GREER replied yes there was an addition on page 5 that could
be very helpful [indisc]
SENATOR ELLIS asked how these services are marketed, especially
to folks outside of Alaska.
MR. DOUG BLATTMACHR replied that in the beginning it was a very
hot topic in the estate planning community and they got a lot of
press. Then there were about 15 seminars across the country
sponsored by New York Life, a company that markets their
services at the largest estate planning conference that is held
each year. As time goes on, more and more professionals started
talking about it.
SENATOR THERRIAULT motioned to pass CSSB 163(JUD), version \I,
from committee with individual recommendations. There was no
objection and it was so ordered.
HB 64-PURCHASE OF STRUCTURED SETTLEMENTS
CHAIR SEEKINS announced HB 64 to be up for consideration.
MR. PAUL LABOLLE, staff to Representative Foster, said HB 64
sets up state oversight to the transfer of structured
settlements.
There are three primary reasons to do this. One is
consumer protection. In this state, we've had
factoring companies acquiring structured settlements
from payees at discounted rates as low as 20 cents on
the dollar. Once that happens, on top of that, they
now have to pay tax, whereas as a structured
settlement in and of itself is a tax free settlement.
What this does is move you into the next reason, which
is the good of the state. Structured settlements are
primarily set up to keep a disabled person who can't
work in a flow of income so that they do not become a
burden on the state. If the transfer is made and they
run out of money, that person now becomes a burden on
the state and the second reason that this is good for
the state is many of these structured settlements are
written in a way that makes them non transferable and
currently we have transfers happening that are
technically legal, but there is no state oversight.
So, nobody is watching what is happening.
The third reason is that it conforms to federal tax
law, which came out last year and imposes a 40 percent
prohibitive tax on structured settlement transfers
unless they are approved by a qualified order, which
is issued by a state.
SENATOR OGAN asked for an example of a structured settlement.
MR. LABOLLE replied that in most cases, they are a personal
injury settlement, like from a car crash.
SENATOR OGAN asked if some operators are preying on people.
MR. LABOLLE replied they have a lot of anecdotal evidence of
that, but that is not happening currently because of the federal
tax law, which has effectively put a halt on any transfers
because of the 40 percent tax on the discounted value.
SENATOR OGAN asked why there is no fiscal note.
MR. LABOLLE explained there is a zero fiscal note because the
Alaska State Court does not anticipate there to be enough to
justify a cost and the numbers would be absorbed into the normal
workload.
CHAIR SEEKINS said he believes the legislation has merit.
SENATOR THERRIAULT asked if the federal law prohibiting any
transfers was in place until the state stepped in.
MR. LABOLLE replied that is correct and referenced the Tax Law
in Chapter 55 of Public Law 107-134, Section (a).
SENATOR THERRIAULT motioned to pass CSHB 64(JUD) from committee
with attached fiscal notes. There was no objection and it was so
ordered.
CHAIR SEEKINS recessed the meeting at 3:05 p.m. and announced he
would reconvene the meeting at 5:00 p.m. the following day.
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