Legislature(1997 - 1998)

03/07/1997 01:32 PM JUD

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
                   SENATE JUDICIARY COMMITTEE                                  
                         March 7, 1997                                         
                           1:32 p.m.                                           
                                                                               
  MEMBERS PRESENT                                                              
                                                                               
 Senator Robin Taylor, Chair                                                   
 Senator Drue Pearce, Vice-chair                                               
 Senator Mike Miller                                                           
 Senator Sean Parnell                                                          
 Senator Johnny Ellis                                                          
                                                                               
  MEMBERS ABSENT                                                               
                                                                               
 None                                                                          
                                                                               
  COMMITTEE CALENDAR                                                           
                                                                               
 SENATE BILL NO. 106                                                           
 "An Act relating to the bond required of a notary public."                    
  PASSED SB 106 OUT OF COMMITTEE                                               
                                                                               
 CS FOR HOUSE BILL NO. 101(L&C)                                                
 "An Act relating to certain irrevocable transfers in trust, to the            
 jurisdiction governing a trust, to challenges to trusts or property           
 transfers in trust, to the validity of trust interests, and to                
 transfers of certain trust interests; and providing for an                    
 effective date."                                                              
  PASSED CSHB 101(JUD) OUT OF COMMITTEE                                        
                                                                               
 SENATE BILL NO. 3                                                             
 "An Act authorizing prosecution and trial in the district court of            
 municipal curfew violations."                                                 
  PASSED CSSB 3(JUD) OUT OF COMMITTEE                                          
                                                                               
  PREVIOUS SENATE COMMITTEE ACTION                                             
                                                                               
 SB 106 - No previous Senate committee action.                                 
                                                                               
 HB 101 - No previous Senate committee action.                                 
                                                                               
 SB 3 - See Health, Education, and Social Service Committee minutes            
    dated 2/21/97.                                                             
                                                                               
  WITNESS REGISTER                                                             
                                                                               
 Representative Al Vezey                                                       
 Alaska State Capitol                                                          
 Juneau, Alaska  99801-1182                                                    
  POSITION STATEMENT:   Sponsor of HB 101                                      
                                                                               
 Rich Hompesch                                                                 
 119 North Cushman, Suite 400                                                  
 Fairbanks, AK  99701                                                          
  POSITION STATEMENT:   Supports HB 101                                        
                                                                               
 Doug Blattmacher                                                              
 Alaska Trust Company                                                          
 840 K St.                                                                     
 Anchorage, AK                                                                 
  POSITION STATEMENT:   Supports HB 101                                        
                                                                               
 Mr. Jeffrey Schoenblum                                                        
 Vanderbilt University Law School                                              
 (615) 322-2668                                                                
                                                                               
 Bob Manley                                                                    
 Hughes, Thorsness, Powell, Huddleston and Bauman                              
 324 E. Captain Cook                                                           
 Anchorage, AK  99501                                                          
  POSITION STATEMENT:   Supports HB 101.                                       
                                                                               
 David Dobbs                                                                   
 9410 Dundee Circle                                                            
 Anchorage, AK  99515                                                          
  POSITION STATEMENT:   Supports HB 101                                        
                                                                               
 W. Finley Abbott                                                              
 Yukon Island                                                                  
 Homer, AK  99603                                                              
  POSITION STATEMENT:   Supports HB 101.                                       
                                                                               
 Allan Johnston                                                                
 101 W. Benson, Suite 500                                                      
 Anchorage, AK  99503                                                          
  POSITION STATEMENT:   Supports HB 101.                                       
                                                                               
 Ms. Diane Borgeson                                                            
 P.O. Box 74046                                                                
 Fairbanks, AK 99707                                                           
  POSITION STATEMENT:  Supports HB 101.                                        
                                                                               
 Ms. Jo Kuchle                                                                 
 P.O. Box 73784                                                                
 Fairbanks, AK  99707                                                          
  POSITION STATEMENT:   Supports HB 101.                                       
                                                                               
 Ms. Shelley Ebenal                                                            
 P.O. Box 74468                                                                
 Fairbanks, AK  99701                                                          
  POSITION STATEMENT:   Supports HB 101.                                       
                                                                               
 Mr. E.M. Cox                                                                  
 1410 So. Cushman                                                              
 fairbanks, AK  99701                                                          
  POSITION STATEMENT:   Supports HB 101.                                       
                                                                               
 Johne Binkley                                                                 
 5325 Chena Small Tracts                                                       
 Fairbanks, AK  99703                                                          
  POSITION STATEMENT:   Supports HB 101.                                       
                                                                               
 Linda Hurlbert                                                                
 110 South Cushman                                                             
 Fairbanks, AK  99701                                                          
  POSITION STATEMENT:   Supports HB 101.                                       
                                                                               
 Kevin Walsh                                                                   
 330 Barnette, Suite 101                                                       
 Fairbanks, AK  99701                                                          
  POSITION STATEMENT:   Supports HB 101.                                       
                                                                               
  ACTION NARRATIVE                                                             
                                                                               
 TAPE 97-17, SIDE A                                                            
 Number 000                                                                    
                                                                               
  CHAIRMAN ROBIN TAYLOR  called the Judiciary Committee meeting to             
 order at 1:32 p.m.  Present were Senators Pearce, Miller, and Chair           
 Taylor.  The first order of business before the committee was SB
 106.                                                                          
                   SB 106 NOTARY PUBLIC BOND                                  
                                                                              
  MR. DOUG WOOLIVER , Administrative Attorney for the Alaska Court             
 System, explained SB 106 is a housekeeping measure aimed at shaving           
 time off of the notary public application process.  Under a statute           
 enacted in 1961, notary public applicants need to post a $1,000               
 bond, which must be signed by the Superior Court clerk.  The court            
 clerk makes sure the bond form is filled out correctly and signed,            
 but does not investigate or analyze it.  The form is then sent to             
 the Lieutenant Governor's Office, which has authority over license            
 issuance for notaries.  SB 106 deletes the provision that requires            
 the court clerk to sign the bond since it is unnecessary and will             
 shorten the application process by one to two weeks.                          
                                                                               
  SHANNON HASTY , Notary Administrator in the Lieutenant Governor's            
 Office, clarified SB 106 will not shorten the application                     
 processing time because she commissions the notaries prior to                 
 sending the applications to the court system.                                 
                                                                               
 Number 063                                                                    
                                                                               
  SENATOR MILLER  moved SB 106 out of committee with individual                
 recommendations.  There being no objection, the motion carried.               
 Number 084                                                                    
         HB 101 TRUSTS & PROPERTY TRANSFERS IN TRUST                         
                                                                               
  VICE-CHAIR PEARCE  called the meeting back to order at 1:40 p.m. and         
 announced HB 101 was next on the agenda.                                      
                                                                               
  REPRESENTATIVE AL VEZEY , sponsor of HB 101, gave the following              
 summary of the measure.  HB 101 is the result of a desire to find             
 out what needs to happen to help make Alaska, and particularly                
 Anchorage, a financial service center for the world.  Anchorage is            
 advantageously located and has a communication network that makes             
 it conducive to becoming an international financial services                  
 center.  There is a market demand for a strong form of trust; one             
 that is exempt from the Uniform Law Against Perpetuities.                     
 Currently, a trust of this nature is not available in the United              
 States and persons worldwide must go to an overseas trust company.            
 In Alaska, the statute against perpetuities establishes a very                
 finite period of time.  HB 101 exempts a trust from that statute.             
 More and more in our society, the statute against perpetuity is               
 being waived.  Alaska recognizes that corporations can be                     
 established in perpetuity, as well as Native Corporations, and                
 national and state park systems.                                              
                                                                               
  REPRESENTATIVE VEZEY  continued.  A second component the trust               
 market is looking for is strong protection of the trust corpus from           
 invasion by creditors.  HB 101 establishes that the trust, once set           
 up, is managed according to all laws.  Extreme care must be taken             
 to ensure that no fraudulent transfers occur upon creation of the             
 trust, and that no intent to defraud future creditors exists.  A              
 statute of repose was specifically defined for fraudulent                     
 transfers.  He emphasized much of HB 101 is set up to preclude                
 fraudulent transfers, but if one occurs, the corpus of the trust              
 can be invaded.  Distributions are considered ordinary income.  In            
 essence, HB 101 is an attempt to meet a market demand for financial           
 services.                                                                     
                                                                               
  RICK HOMPESCH , a Fairbanks attorney, testified in support of HB
 101.  This measure allows Alaskans to create trusts and protect               
 their assets for the benefit of their families and will expand its            
 trust industry by providing more work for financial advisors,                 
 accountants, attorneys and appraisers.  One year ago, he traveled             
 to the Cook Islands to investigate its trust business.  In an                 
 island with a population of 10,000, about 150 jobs are attributable           
 to the trust industry.  Alaska has many advantages over the Cook              
 Islands: it has political stability as part of the United States;             
 and is located midway between three of the largest financial                  
 districts of the world - London, Tokyo, and New York.  Trustees               
 will want to travel to Alaska, enhancing the tourism market.  He              
 urged the committee to pass HB 101.                                           
                                                                               
 Number 225                                                                    
  DOUGLAS   BLATTMACHER  informed committee members he has over 24 year        
 of trust management experience and spent 10 years in the trust                
 industry in Alaska.  He believes HB 101 will bring significant                
 business to the State of Alaska and create quality jobs.                      
                                                                               
  SENATOR PARNELL  asked Mr. Blattmacher to address the proposed               
 amendments submitted by the Attorney General's Office.   MR.                  
 BLATTMACHER  replied Mr. Hompesch was more prepared to respond to             
 the legal and technical aspects of the amendments.                            
                                                                               
  BOB MANLEY , a member of Hughes, Thorsness, Powell, Huddleston, and          
 Bauman Law Firm, state chairman of the American College of Trust              
 and Estate Counsel, and a fellow of the American College of Tax               
 Counsel, testified in support of HB 101 because it will bring a               
 clean industry to Alaska.  Delaware has modified its laws to become           
 an attractive situs for corporations and limited partnerships.                
 South Dakota modified its interest law provisions to attract                  
 central processing for credit cards nationwide.  South Dakota also            
 repealed its rule against perpetuities and developed a very                   
 significant business in the trust area dealing with generations               
 skipping transfer trusts.  HB 101 provides an opportunity for                 
 Alaska to make changes to establish, not only the partial repeal of           
 the rule against perpetuities, but self-settlor trusts, whereby               
 creditors of a settlor cannot make the trustee pay the money out              
 even if the settlor is a beneficiary, provided there was no                   
 fraudulent conveyance initially and the statute of repose had not             
 expired.  These kinds of provisions are available in a large number           
 of off-shore jurisdictions and have resulted in billions of dollars           
 flowing out of the United States to foreign locations.                        
                                                                               
 Number 276                                                                    
                                                                               
  DAVID DOBBS , Vice-President and Trust Officer at National Bank of           
 Alaska, stated his support of HB 101 because it can be properly               
 managed by industries in Alaska.                                              
                                                                               
  PROFESSOR JEFFREY SCHOENBLUM , Vanderbilt University Law School,             
 stated he was asked by the Attorney General's Office to                       
 specifically comment on the rule against perpetuities provision in            
 HB 101, and a proposed amendment to except real property from being           
 placed in trusts.  He stated his support of that amendment because            
 the abolition of the rule against perpetuities creates a great risk           
 that real property in Alaska will be tied up indefinitely, will be            
 fractionalized as families expanded over generations, and because             
 the history of similar actions in other countries has been very               
 negative.  He added the economic decline of the Ottoman Empire was            
 specifically attributed to the absence of any rule.  Many of the              
 off-shore jurisdictions have not completely eliminated the rule               
 against perpetuities but have set forth a specific time period for            
 the rule, such as 80 or 100 years.  He urged the committee to                 
 retain the rule with regard to real property.                                 
                                                                               
  PROFESSOR SCHOENBLUM  said he also strongly supports the provision           
 that excepts out spouses' elective share.  It is crucial that HB
 101 not result in the denial of protection for surviving spouses,             
 and be used as a way to defeat spousal claims by placing property             
 in trusts.  Regarding the general utility of these sorts of                   
 provisions with regard to asset protection and bringing offshore              
 funds to Alaska, he cautioned legislators about having high                   
 expectations because foreign jurisdictions have an entirely                   
 separate sovereignty; Alaska does not.  Alaska is subject to the              
 full faith and credit clause, and other governing principles about            
 enforcement of judgments within the United States.  The matter of             
 whether persons who are seeking asset protection will find Alaska             
 more appealing than offshore jurisdictions remains to be seen.                
                                                                               
  Number 329                                                                   
                                                                               
 VICE-CHAIR   PEARCE  noted Alaska has something no other country has;         
 at least 226 separate sovereignties at the moment.  She asked                 
 Professor Schoenblum to stay on line in order to address specific             
 amendments.                                                                   
                                                                               
  SENATOR ELLIS  advised he has visited the capital of the Ottoman             
 Empire, and moved amendments 1-4.                                             
                                                                               
  W. FINLEY ABBOT  T , testified via teleconference from Anchorage, and        
 asked whether HB 101 strengthens irrevocable trusts so that they              
 are not as attachable.   REPRESENTATIVE VEZEY  responded HB 101 would         
 only apply to a form of irrevocable trust and is designed to                  
 strengthen the trust and make it last for multiple generations.               
  MR. ABBOTT  noted his strong support of the measure and added he has         
 seen, in the last two years, cases of children losing family                  
 homesteads that were set up in trusts.    At present he is concerned          
 if he puts land into a trust it will be more liable because the               
 whole thing can be attached, rather than subdivided.                          
                                                                               
  MR. ALLAN JOHNSTON,  manager of Wedbush Morgan Securities, stated            
 investment firms, in general, are very supportive of the concept of           
 the bill.  Creating more high-end jobs in Alaska will benefit                 
 everyone.  Although there will not be any direct investment                   
 business for several years to come, the essence of HB 101 will make           
 Alaska business-friendly.                                                     
                                                                               
  SENATOR ELLIS  asked Mr. Johnston to elaborate on his statement that         
 there will be no significant economic impact from HB 101 for                  
 several years.   MR. JOHNSTON  said he does not believe there will be         
 direct investment business to investment firms for awhile, but he             
 does believe the bill will make Alaska look more business-friendly            
 and may encourage people to buy second homes here.                            
                                                                               
 Number 381                                                                    
                                                                               
  DIANE BORGESON , a financial consultant in Fairbanks, testified she          
 fully supports the bill, as modified.                                         
                                                                               
  JO KUCHLE  testified from Fairbanks in strong support of HB 101 as           
 it will bring a lot of investment money into Alaska.  Off-shore               
 jurisdictions cannot offer the U.S. court system which provides               
 surety as to what laws apply.  HB 101 does not impact Alaska's                
 natural resources, and only adds to the State in the form of                  
 investment trust work, financial planning, and visits from those              
 investing here.  If Alaska does not take this opportunity now,                
 another state will.                                                           
                                                                               
  E.M. COX , a Fairbanks CPA, strongly urged the Legislature to vote           
 for HB 101 as it will benefit individuals and Alaska's business               
 community.  If HB 101 does not pass, other states will take the               
 lead.                                                                         
                                                                               
  SHELLEY EBENAL , an attorney with Hompesch and Associates,                   
 Fairbanks, testified in support of HB 101 because of the economic             
 advantages it will bring to Alaska.                                           
                                                                               
 Number 421                                                                    
                                                                               
  VINCENT USERA , Assistant Attorney General, advised the                      
 Administration has not taken a position on the bill per se.  He               
 noted last year's bill contained three problematic areas: whether             
 these trusts could be used to avoid the marital share in a probate            
 situation; whether a person could avoid child support obligations             
 by use of this trust; and whether it makes sense to waive the rule            
 against perpetuities.  The first two areas of concern were                    
 addressed by the drafters of HB 101, but technical flaws remain.              
 The first two sections contain references back and forth between              
 the sections that deal with the augmented estate of a spouse, to              
 make certain the intent is transferred from one section to the                
 other.  The bill as drafted, only has one section in AS 34.30.110;            
 the change there refers to the probate code (AS 13.12.205).  The              
 Department of Law (DOL) has proposed an amendment to add in cross             
 references to ensure that those provisions apply equally in all               
 situations.                                                                   
                                                                               
 Regarding child support,  MR. USERA  explained HB 101 provides that           
 distributions from the trust to a beneficiary could be attached by            
 the Child Support Enforcement Agency (CSED).  This adds nothing to            
 present law and, in fact, could be construed to place child support           
 exclusively in favor of other creditors.  DOL has submitted an                
 amendment to delete that provision as it does not change the status           
 quo and could be misinterpreted.                                              
                                                                               
 The third amendment discussed by  MR. USERA  also pertains to child           
 support payments.  HB 101 voids the trust of a settlor who is in              
 default by 30 days or more of making a child support payment.  DOL            
 recommends changing the provision from "a child of the settlor" to            
 "a child," to encompass situations in which a settlor has incurred            
 child support obligations for a stepchild or another relationship             
 that has arisen.                                                              
                                                                               
 Number 454                                                                    
                                                                               
  VICE-CHAIR PEARCE  asked which drafters Mr. Usera referred to.   MR.         
 USERA  said he was referring to the person who originally drafted             
 the bill, Jonathan Blattmacher from New York, as well as proponents           
 of the bill here in Alaska.                                                   
                                                                               
  SENATOR MILLER  noted Alaska has prioritized the attachment of child         
 support payments from other revenue, permanent fund dividends being           
 one, and asked why the DOL would support that policy elsewhere, but           
 not in HB 101.   MR. USERA  replied DOL's concern is that by                  
 specifying that distributions from the trust are subject to child             
 support obligations in statute, that language could be construed to           
 exclude any other creditor from collecting.                                   
                                                                               
    MR. USERA  noted the fourth amendment, pertaining to the rule              
 against perpetuities, makes a substantive change.  The rule against           
 perpetuities was intended to prohibit the generational tie-up of              
 tangible or intangible property to prevent it from becoming subject           
 to alienation.  HB 101 waives the rule against perpetuities for               
 every type of property.  DOL recommends that real property be                 
 excepted from that waiver because it differs from intangible                  
 property.  The value of intangible property, such as stocks, is of            
 interest, not the stock certificate.  In the case of real property,           
 the value may increase, but the focus and interest remains in the             
 land itself and the land size itself can never increase.  At some             
 point in time there could be so many beneficiaries of the trust               
 that there can be no agreement among them, yet the trustee is                 
 obligated to perpetuate the trust and the land would not be subject           
 to alienation.  Alaska's rule against perpetuities provides that an           
 interest must set within 90 years.  DOL believes that is a long               
 enough period of time to keep property in a trust.  If the trust              
 beneficiaries so desire, they could recreate another trust after 90           
 years.                                                                        
                                                                               
  REPRESENTATIVE VEZEY  believed the proposed amendments do nothing            
 for the bill, particularly the amendment excepting land from the              
 waiver of the rule against perpetuities, and although there may be            
 things in the bill that are unnecessary, those things reaffirm the            
 existence of other Alaska law, such as the status of child support            
 payments.                                                                     
                                                                               
 Number 527                                                                    
                                                                               
  JOHNE BINKLEY  testified from Anchorage in support of HB 101.                
                                                                               
 SENATOR ELLIS    moved to adopt Amendment 1 as follows.                       
  Page 2, line 3:                                                              
   Following "transfer"                                                        
   Insert ", including a transfer in trust with a transfer                     
 restriction under AS 34.40.110(a),"                                           
                                                                               
  Page 4, line 13:                                                             
   Following "provided in"                                                     
    Insert "AS 13.12.205(2) and"                                               
                                                                               
  Page 6, line 4:                                                              
   Following "(b)"                                                             
    Insert "Except as provided in AS 13.12.205, if"[If]                        
                                                                               
  SENATOR MILLER    objected for the purpose of discussion.                    
                                                                               
  MR. HOMPESCH  stated the first three amendments, in his view, are            
 inconsequential.  In most planning situations, both spouses will              
 waive the right to elect.  In Alaska, as in other states, it is               
 illegal to disinherit your spouse unless he or she agrees by way of           
 a pre- or post-nuptial agreement.  The augmented estate and the               
 right to elect provisions provide that if that happens, the                   
 disinherited spouse may take approximately one-third of the estate.           
 To protect the surviving spouse from being defrauded by way of an             
 Alaska trust, the Administration urged the drafter to include                 
 provisions regarding the augmented estate, which is included in HB
 101.  As a practical matter, it is a non-issue for a very important           
 tax reason.  When gifts are made to one of these trusts, it is                
 important that the gift be a completed gift under the federal-state           
 tax rules.  If a surviving spouse has the right to pull back one-             
 third of the assets in this trust under the augmented estate                  
 provisions, the gift is not complete and the entire trust fails and           
 is included in the deceased spouse's estate.  Therefore, from a               
 planning standpoint, when two spouses set up a trust, it is best to           
 have both waive their rights to elect and those under the augmented           
 estate provisions.  He concluded, as a practical matter for                   
 attorneys in the field, the technical changes are a non-issue                 
 because they will be waived in every instance, otherwise there will           
 be serious estate tax implications and the plan will fall apart.              
 He said the three technical changes could better be addressed in a            
 technical corrections bill, if absolutely necessary.                          
                                                                               
 TAPE 97-17, SIDE B                                                            
 Number 00                                                                     
                                                                               
  MR. SCHOENBLUM  emphasized the concern is that an individual who             
 wished to disinherit his/her spouse could transfer property to                
 trust in Alaska and Alaska would become known as the haven for                
 defeating rights of surviving spouses.  Even surviving spouses in             
 other states could be left in a difficult economic situation with             
 everyone looking to Alaska where the assets were located.  This is            
 precisely what certain off-shore jurisdictions have offered to                
 clients from Europe, not only with regard to spousal rights, but              
 with regard to childrens' rights.  The question is whether Alaska             
 wishes to serve that purpose because there is a very strong demand            
 for trusts, on the part of many persons who do not wish to provide            
 for spouses.                                                                  
                                                                               
  SENATOR PARNELL  asked Mr. Hompesch whether the provision against            
 disinheriting one's spouse is part of the Uniform Probate Code.               
  MR. HOMPESCH  answered it is, and he believed 12 to 16 states have           
 adopted very similar provisions to legislation adopted in Alaska              
 during the last session.                                                      
                                                                               
  PROFESSOR SCHOENBLUM  agreed many states have similar provisions to          
 protect the spouse, but emphasized the problem is the confusion               
 between the various sections of the bill.  The purpose of the                 
 proposed amendments is to clarify the confusion because HB 101                
 creates the possibility that any other provision regarding the                
 elective share could be defeated through the creditor protection              
 trusts because the spouse could be regarded as a creditor.                    
                                                                               
 Number 549                                                                    
                                                                               
  REPRESENTATIVE VEZEY  clarified HB 101 expressly states that a trust         
 set up in this manner is part of the augmented estate so if a state           
 did not have a Uniform Probate Code, they would still have that               
 hurdle to get over.                                                           
                                                                               
  SENATOR ELLIS  asked how that would relate to people in foreign              
 countries or other jurisdictions.   MR. HOMPESCH  answered the spouse         
 in the outside jurisdiction still has rights under Alaska law.  In            
 addition, if someone were setting up one of these trusts to defraud           
 his/her spouse, the spouse would have four years to sue the trust             
 under the fraudulent conveyance provision.  He repeated DOL's                 
 concerns are unfounded.                                                       
                                                                               
  MR. USERA  stated the concern is not with the people married at the          
 time the trust is created, but with those who create a trust and              
 marry after the four year statute of limitation period.  In such a            
 case, the planning would have been done with no spouse to talk to             
 about waiving the augmented estate.  The confusion between the                
 sections could lead to that result.                                           
                                                                               
  SENATOR MILLER  maintained his objection to the adoption of                  
 Amendment 1.  The motion to adopt Amendment 1 failed 3 to 1 with              
 Senators Miller, Pearce and Parnell voting nay, and Senator Ellis             
 voting yea.                                                                   
                                                                               
  SENATOR ELLIS  moved to adopt Amendment 2 which reads as follows.            
                                                                               
  Page 6, line 21:                                                             
   Following "under a"                                                         
   Insert "child"                                                              
  Page 6, line 21:                                                             
   Delete "for a child of the settlor"                                         
                                                                               
  SENATOR MILLER  objected.                                                    
                                                                               
 Number 514                                                                    
                                                                               
     In response to Senator Parnell,  MR. HOMPESCH  said that there are        
 two parts to the amendment; both are of little consequence.  The              
 first amendment attempts to change the provision to include any               
 child, not just the child adopted or born to the decedent.  He                
 questioned whether this point should occupy a significant amount of           
 CSED's time and felt it should be addressed in the form of a                  
 technical corrections bill.                                                   
                                                                               
  VICE-CHAIR PEARCE  did not understand Mr. Hompesch's point regarding         
 a technical bill.   MR. HOMPESCH  said that he had never known a              
 person who was obligated to pay child support for a child that was            
 neither adopted nor born to that person.  He pointed out the                  
 Administration has had the bill for six months yet he only learned            
 of the proposed amendment yesterday.                                          
                                                                               
  VICE-CHAIR PEARCE  believed that if the change made sense, some              
 attention should be given to it.  She asked if there was further              
 discussion.  Hearing none, a hand vote was taken and Senators                 
 Pearce, Parnell, and Ellis voted "Yea" and Senator Miller voted               
 "Nay."  Therefore, Amendment 2 was adopted.                                   
                                                                               
  SENATOR ELLIS  moved to adopt Amendment 3 as follows.                        
  Page 6:                                                                      
   Delete lines 25-29.                                                         
                                                                               
  SENATOR MILLER  objected for clarification.                                  
                                                                               
    MR. USERA  explained Amendment 3 deletes the provision that allows         
 child support to be taken from distributions of the trust.  Mr.               
 Usera said the provision is unnecessary because current law                   
 provides for such attachment and specifying it in HB 101 could be             
 construed to exclude other creditors from collecting any payment.             
 Under current law, other creditors could be excluded in the order             
 in which the creditor takes precedent, but they would be able to              
 share in attaching distributions.                                             
                                                                               
  SENATOR MILLER  said, "I can follow that reasoning, it's just that           
 I don't want to see this come back and part of the argument that              
 the Administration used last year was that we didn't protect child            
 support payments.  I don't want to see this argument coming back              
 from the Administration as a reason to veto this bill because we              
 didn't protect them."                                                         
                                                                               
  MR. USERA  stated, `Our concerns about child support were addressed          
 and this was a specific - there are two specific provisions in the            
 bill to address the child support concerns.  One was the 30 day in            
 arrears provision which included the language "child of a settlor"            
 that you just addressed.  And the other provision is this making it           
 very clear that distribution is subject to attachment, but it's not           
 necessary.'                                                                   
                                                                               
  SENATOR MILLER  replied, "I understand that but all I'm saying is I          
 don't want the Administration to come back and say that the bill              
 did not protect child support, like we heard last year.  I just               
 don't want - because it's not in other places - I'm just a little -           
 not as trustworthy of the Administration as you may be, Senator               
 Ellis."   SENATOR MILLER  removed his objection to Amendment 3.               
 Without further objection, Amendment 3 was adopted.                           
                                                                               
 Number 450                                                                    
                                                                               
  SENATOR ELLIS  moved that Amendment 4 be adopted and reads as                
 follows.                                                                      
  Page 5, line 16:                                                             
   Following " created"                                                        
                                                                               
   Insert ", except that this provision does not apply to                      
 real property"                                                                
                                                                               
  VICE-CHAIR PEARCE  objected and asked Mr. Hompesch to explain.               
                                                                               
  MR. HOMPESCH  advised that Amendment 4 is bad policy and is                  
 difficult to understand.  Corporations may be made perpetual and              
 real estate can be transferred to a corporation that is perpetual;            
 a legal practice in every state.  There is no restriction on                  
 alienation because the president of the corporation can sell the              
 real estate.  Mr. Hompesch did not understand why it would be bad             
 for real estate to be conveyed to a perpetual trust for the benefit           
 of the beneficiaries since the trustee, like the corporate                    
 president, has the power to sell the real estate. Mr. Hompesch                
 informed the committee, as the trustee of a trust of 23                       
 beneficiaries that own a house in Green Valley, AZ, he is in the              
 process of selling the real estate and distributing the proceeds 23           
 ways.  The concern regarding the splintering of the interest and              
 the real estate is not an issue and is based on faulty reasoning.             
                                                                               
 Mr. Hompesch believed such a policy would affect Alaskan residents            
 negatively.  If Amendment 4 was adopted, residents of states                  
 outside of Alaska will transfer their real estate to limited                  
 liability companies and then transfer their shares in the limited             
 liability companies to their perpetual trust in Alaska.  Many                 
 Alaskans will want to convey their real estate directly to a trust.           
 Alaskans would have to first form a limited liability company or              
 limited partnership to get around this rule.  That would create               
 additional attorneys' fees.  He stated he is opposed to this                  
 amendment and does not want to be accused of creating a situation             
 to benefit himself.  He repeated this amendment is unnecessary.               
                                                                               
 Number 422                                                                    
                                                                               
  MR. USERA  countered that although a trustee can always sell the             
 property, the trustee is obligated to do what is best for the                 
 trust, not necessarily the beneficiaries.  A piece of property                
 could be growing in value to the extent that the trustee would not            
 be discharging his fiduciary obligations if he sold the property,             
 because that would not be in the best interest of the trust.                  
 Although one could form a corporation or limited liability company            
 and have that entity own the land, and the shares in that entity be           
 held by the trust, the shares would be held by the trust, not the             
 land itself.                                                                  
                                                                               
  MR. SCHOENBLUM  agreed with Mr. Usera and added the rule against             
 perpetuities does not relate to all future interests, it only                 
 relates to contingent future interests.  It is not a question of              
 owning property in perpetuity, but a question of creating the kind            
 of conditional interest that is essentially contingent.  It might             
 be possible for a settlor to restrict the powers of the trustee so            
 the trustee would not be in the position to sell the property or              
 divide it.                                                                    
                                                                               
  REPRESENTATIVE VEZEY  advised there are many ways to get around an           
 exception for real property and urged the committee to vote against           
 Amendment 4.                                                                  
                                                                               
  VICE-CHAIR PEARCE  maintained her objection.  The motion to adopt            
 Amendment 4 failed with Senator Ellis voting "yea," and Senators              
 Pearce, Miller and Parnell voting "nay."                                      
                                                                               
  KEVIN WALSH , a Fairbanks CPA, testified in support of HB 101 as it          
 fixes some problems in the law with respect to the rule against               
 perpetuities, and serves the public purpose.  There are many                  
 instances in which land is held in perpetuity, i.e. for the state.            
 It is possible to alienate property in other ways, i.e. one can               
 provide for a conservation easement.  The arguments being made are            
 an attempt to kill a very good bill for political reasons.  If some           
 of the projected abuses occur, the legislature can amend the law.             
                                                                               
  LINDA HULBERT , an insurance agent, testified from Fairbanks in              
 support of HB 101.  Many of her clients would like to establish               
 trusts to pass their property to their children.                              
                                                                               
 Number 342                                                                    
                                                                               
  SENATOR ELLIS  asked Representative Vezey to provide an estimate of          
 the number of jobs HB 101 might bring to the Anchorage area.                  
  REPRESENTATIVE VEZEY  did not have an estimate, but noted this               
 market, on a global scale, is a multimillion dollar market per year           
 and the management fees are substantial.                                      
                                                                               
  SENATOR PARNELL  moved CSHB 101(JUD) from committee with individual          
 recommendations.  There being no objection, the motion carried.               
    SB   3 MINORS' CURFEW VIOLATION HEARD IN DISTRICT COURT                   
                                                                              
    SENATOR PEARCE , sponsor of the measure, said SB 3 establishes a           
 uniform approach to handling curfew violations for those                      
 communities that wish to enact a curfew ordinance.  Recently, the             
 City of Juneau attempted to enact a youth curfew but found no                 
 avenue to prosecute offenders.  SB 3 mandates that all juvenile               
 curfew violations be handled in District Court, with a parent or              
 legal guardian present during the proceedings.  SB 3 will allow for           
 more effective and expeditious handling of these offenses.                    
                                                                               
  SENATOR PEARCE  added Juneau is fortunate to have Judge Froehlich            
 who has taken it upon himself to spend a great deal of time on                
 youth cases, particularly alcohol and drug offenses.  Judge                   
 Froehlich estimates about 75 percent of the young people out after            
 Juneau's proposed curfew time are the group who end up as the more            
 serious alcohol, drug and tobacco offenders.  He believes                     
 communities need all of the tools available to handle youth                   
 intervention as early as possible.                                            
                                                                               
  SENATOR PEARCE  explained SB 3 has a fiscal note from the Court              
 System because it calls for court hearings for curfew violators.              
 She noted the Municipality of Anchorage (MOA) has proposed an                 
 amendment to allow for a community work option if the offender                
 cannot afford to pay a fine, or if the parents choose not to pay              
 the fine.  The amendment is permissive, because a recent court                
 decision requires that a youth offender who is sentenced to a                 
 certain amount of community work has the right to a jury trial.               
 She was unsure whether youth courts can be used in place of a jury            
 trial.                                                                        
                                                                               
  SENATOR ELLIS  asked whether the fiscal note accounts for the                
 amendment.   SENATOR PEARCE  said she would provide the committee             
 with an updated fiscal note.   SENATOR ELLIS  asked Mr. Christensen           
 to speak to the assumption in the fiscal note that no municipality            
 will criminalize curfew violations.                                           
                                                                               
 CHRIS CHRISTENSEN , Alaska Court System, stated last year the MOA             
 adopted an ordinance making curfew violations a civil offense and             
 issued 1500 citations.  Those cases are currently being handled by            
 a municipal hearing officer.  Offenders have the right to appeal              
 those cases to a court, but a $750 bond is required, and so far               
 there has only been one appeal.  Currently cities cannot                      
 criminalize curfew violations, because only the Division of Family            
 and Youth Services (DFYS) can prosecute juveniles.  SB 3 adds                 
 curfew infractions to the list of crimes for which minors can be              
 prosecuted.  SB 3 raises two issues:  are curfews good public                 
 policy; and how will this policy affect the court system.  He                 
 explained Alaska is one of only five states with a fully unified              
 court system meaning the state courts do everything.  Other states            
 have city and county courts.  Therefore when municipalities create            
 a crime by ordinance, that crime is prosecuted in the state courts.           
 Sometimes the Legislature has passed laws giving municipalities the           
 right to take actions, and they have done so in a much more                   
 expansive way than the Legislature expected.  He gave the example             
 of the MOA's authority to enact traffic ordinances and its use of             
 a photo-radar operation which resulted in an increase of 8,000                
 traffic tickets in one year.  Those tickets cannot be paid by mail            
 and require interaction with the court system.  No one guessed the            
 fiscal impact MOA's action would have.                                        
                                                                               
  MR. CHRISTENSEN  explained the fiscal note for SB 3 contains a               
 conservative estimate of 3,000 curfew violations, since some of the           
 violators will simultaneously receive an underage drinking ticket.            
 Although SB 3 allows municipalities to treat curfew violations as             
 misdemeanors as well as infractions, he prepared the fiscal note              
 assuming municipalities will not charge curfew offenders with                 
 misdemeanors because they will be required to provide a public                
 defender and the court system will have to provide a six person               
 jury.  Most infractions are on bail schedules, and most people pay            
 them by mail or at the counter.  Also problematic is that SB 3                
 allows municipalities to demand that curfew offenders make a court            
 appearance, even if the curfew violation is treated as an                     
 infraction.  He suggested, if it is not the committee's intent to             
 treat curfew violations as misdemeanors and/or to force the                   
 offenders to make a court appearance, that SB 3 be amended to read            
 the offenses should be treated as infractions and should be on the            
 municipality's bail schedule.  With respect to the court decision             
 (Booth v. State) referred to by Senator Pearce, a 1995 appeal was             
 based on a law authorizing judges to impose mandatory work service            
 for felonies and misdemeanors, but not for infractions.  The Booth            
 decision requires if the sentence for a crime is mandatory, not               
 optional, community service, the person has the right to a jury               
 trial and a public defender.                                                  
                                                                               
 Number 153                                                                    
                                                                               
  SENATOR PEARCE  clarified on page 1, line 18 of the amendment,               
 community service is clearly provided as an option.                           
                                                                               
  SENATOR ELLIS  asked Senator Pearce if it is her intent to require           
 offenders to make a court appearance.   SENATOR PEARCE  believed it           
 best to have the option to require a court appearance if those                
 involved feel it will be useful for a particular child to go before           
 a judge.  It has had a positive impact in Juneau.                             
                                                                               
 Number 123                                                                    
                                                                               
  SENATOR ELLIS  questioned whether a municipality would have to apply         
 the same policy to all offenders, or whether offenders could be               
 treated differently based on circumstances.   MR. CHRISTENSEN                 
 replied a municipality could choose to, for example, put first                
 offenders on a bail schedule, and have second offenders make a                
 court appearance.  He repeated the court system's fiscal note is              
 based on the assumption that all municipalities will not require a            
 court appearance, so it contains a conservative estimate.  He added           
 with infractions on the bail schedule, the court sees only about              
 one-third of the offenders.                                                   
                                                                               
  SENATOR PEARCE  stated her intent is to provide another tool for             
 local governments, and she hopes they would not throw all cases               
 into the court system, but instead would take advantage of this               
 tool for second offenders.  She said she is open to ideas as to how           
 to best accomplish that goal.  She felt the court system's fiscal             
 note is not outrageous, especially if SB 3 keeps one minor out of             
 jail for one year.                                                            
                                                                               
  SENATOR ELLIS  noted his support of the amendment, but inquired              
 whether it was requested by the Anchorage Assembly.   SENATOR PEARCE          
 responded it was not.  Assemblyman Murdy expressed support of the             
 bill but she introduced it in response to Juneau's situation.                 
 Assemblyman Murdy requested that community work be an option                  
 because in some instances parents refuse to pay the fine and there            
 is no way to force the child to do anything as an alternative.                
                                                                               
 Number 076                                                                    
                                                                               
  SENATOR ELLIS  asked if it is safe to assume the Anchorage Assembly          
 has no objection to the approach in SB 3.   SENATOR PEARCE  said no           
 one has expressed objection.  She added she has had no indication             
 that the MOA will rush to criminalize curfew violations.                      
                                                                               
  SENATOR ELLIS  questioned whether a parent will be compelled to be           
 present during a court hearing under SB 3.   MR. CHRISTENSEN  said            
 the language in the bill regarding the presence of parents is in              
 existing law.  It is current practice with minor traffic                      
 violations, among others, but does cause problems because cases               
 often have to be held over because someone cannot attend.                     
                                                                               
 Number 046                                                                    
                                                                               
  SENATOR ELLIS  asked for more detail on the practical application of         
 that provision.   MR. CHRISTENSEN  offered to provide Senator Ellis           
 with more information at a later date.                                        
                                                                               
 TAPE 97-18, SIDE A                                                            
 Number 000                                                                    
                                                                               
  STEVEN GRUENSTEIN , representing Guardians for Family Rights,                
 testified in favor of SB 3.  Teenagers need limits, quick                     
 consequences, and early intervention, when they step out of line.             
 SB 3 will prevent jail time in many cases.  He supports the                   
 community service option and a system with teeth.                             
                                                                               
  SENATOR MILLER  offered Amendment 1.  There being no objection to            
 the adoption of Amendment 1, it was so ordered.                               
                                                                               
  SENATOR PEARCE  repeated her willingness to entertain suggestions            
 for improvements or alternatives to SB 3, but stated her belief               
 that early intervention is less costly than incarceration.                    
                                                                               
  SENATOR PARNELL  moved SB 3 as amended from committee with                   
 individual recommendations.  There being no objection, the motion             
 carried.                                                                      
  SENATOR PEARCE  announced the Senate Judiciary Committee will meet           
 at 1:30 p.m. on Monday, Wednesday and Friday of the following week,           
 and adjourned the meeting at 3:20 p.m.                                        
                                                                               

Document Name Date/Time Subjects