Legislature(1999 - 2000)

05/12/1999 02:42 PM JUD

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
              SENATE JUDICIARY COMMITTEE                                                                                        
                     May 12, 1999                                                                                               
                      2:42 p.m.                                                                                                 
MEMBERS PRESENT                                                                                                                 
Senator Robin Taylor, Chairman                                                                                                  
dSenator Dave Donley                                                                                                            
Senator Johnny Ellis                                                                                                            
MEMBERS ABSENT                                                                                                                  
Senator John Torgerson                                                                                                          
Senator Rick Halford, Vice-Chairman                                                                                             
COMMITTEE CALENDAR                                                                                                              
SENATE BILL NO. 162                                                                                                             
"An Act relating to the rule against perpetuities, nonvested                                                                    
property interests, and powers of appointment; and providing for an                                                             
effective date."                                                                                                                
     -MOVED CSSB 162(JUD) OUT OF COMMITTEE                                                                                      
SENATE BILL NO. 163                                                                                                             
"An Act relating to a trustee's duties to inform and account to                                                                 
beneficiaries; relating to the revocation, modification,                                                                        
termination, reformation, construction, and trustees of trusts; and                                                             
relating to transfer restrictions in trusts."                                                                                   
     -HEARD AND HELD                                                                                                            
SENATE BILL NO. 165                                                                                                             
"An Act relating to the remedies available to judgment creditors                                                                
against limited liability company members and their assignees and                                                               
against limited partnership general and limited partners and their                                                              
assignees; and providing for an effective date."                                                                                
     -MOVED SB 165 OUT OF COMMITTEE                                                                                             
SENATE BILL NO. 166                                                                                                             
"An Act relating to the amendment and revocation of spouses'                                                                    
community property agreements and community property trusts; and                                                                
providing for an effective date."                                                                                               
     -MOVED SB 166 OUT OF COMMITTEE                                                                                             
CS FOR HOUSE BILL NO. 177(HES)                                                                                                  
"An Act relating to foster parents; relating to the right of foster                                                             
parents to have notice of, and testify at, delinquency hearings and                                                             
to the disclosure of minors' records to foster parents; and                                                                     
amending Rules 3, 7, 10, 12, 21, 23, and 25, Alaska Delinquency                                                                 
     -MOVED CSHB 177(HES) OUT OF COMMITTEE                                                                                      
PREVIOUS SENATE COMMITTEE ACTION                                                                                                
SB 162 - See Judiciary Committee minutes dated 5-3-99 and 5-11-99.                                                              
SB 163 - See Judiciary Committee minutes dated 5-3-99 and 5-11-99.                                                              
SB 165 - See Judiciary Committee minutes dated 5-11-99.                                                                         
SB 166 - See Judiciary Committee minutes dated 5-11-99.                                                                         
HB 177 - No previous Senate action.                                                                                             
WITNESS REGISTER                                                                                                                
Steve Noye                                                                                                                      
Alaska Trust Company                                                                                                            
1029 W 3rd Ave.                                                                                                                 
Anchorage, AK                                                                                                                   
POSITION STATEMENT:  Supports SB 163                                                                                            
Mr. Rich Hompesch                                                                                                               
119 N. Cushman Suite 400                                                                                                        
Fairbanks, AK 99701                                                                                                             
POSITION STATEMENT:  Testified in support of SB 162 and SB 163                                                                  
Mary Ellen Beardsley                                                                                                            
Assistant Attorney General                                                                                                      
Department of Law                                                                                                               
1031 W 4th Ave., Suite 200                                                                                                      
Anchorage, AK  99501-1994                                                                                                       
POSITION STATEMENT:  Answered questions regarding SB 166                                                                        
Representative Fred Dyson                                                                                                       
Alaska State Capitol                                                                                                            
Juneau, AK  99801-1182                                                                                                          
POSITION STATEMENT:  Sponsor of HB 177                                                                                          
ACTION NARRATIVE                                                                                                                
TAPE 99-32, SIDE A                                                                                                              
Number 001                                                                                                                      
CHAIRMAN ROBIN TAYLOR called the Judiciary Committee meeting to                                                                 
order at 2:42 p.m.  Present were Senators Donley, Ellis, and                                                                    
Chairman Taylor.  The first order of business to come before the                                                                
committee was SB 163.                                                                                                           
                   SB 163-TRUSTS AND TRUSTEES                                                                                   
STEVE NOYE, Director of, and lobbyist for, the Alaska Trust                                                                     
Company, made the following comments.  SB 163 contains corrections                                                              
to the Alaska Trust Act.  Most of the corrections have been taken                                                               
from the Uniform Trust Act, and deal with modification and                                                                      
termination of trusts.  The issue of most concern to committee                                                                  
members is the requirement to inform beneficiaries of the trust's                                                               
registration.  The Uniform Trust Act addresses that issue by                                                                    
stating "the result of this limitation is that the information need                                                             
not be furnished to beneficiaries with remote, remainder                                                                        
interests."  That is why the term "current beneficiaries" was used                                                              
to distinguish that beneficiaries who are immediately to receive                                                                
funds must be notified.  Beneficiaries with remote, remainder                                                                   
interests are any people that may receive funds in the future, i.e.                                                             
children, grandchildren, great-grandchildren.  If minors were                                                                   
required to be informed, the court could appoint a guardian ad                                                                  
litem to represent the minor for up to 21 years, at the expense of                                                              
the trust.                                                                                                                      
SENATOR DONLEY noted he disagrees with the concept that the                                                                     
requirement to notify future beneficiaries of trusts should be                                                                  
eliminated.  He said he believes they deserve to be notified unless                                                             
they are specifically excluded from notification in the trust                                                                   
Number 065                                                                                                                      
MR. NOYE said to Senator Donley the crux of the matter is how a                                                                 
trustee could go about notifying people who have not yet been born.                                                             
SENATOR DONLEY remarked SB 163 changes current law which has been                                                               
in existence for quite awhile.  He asked when it was last changed.                                                              
MR. NOYE said the law has not been changed, however when the                                                                    
Legislature enacted the Alaska Trust Act, the lifetime of a trust                                                               
was affected by the elimination of the rule against perpetuities,                                                               
which, in Alaska, was 90 years.                                                                                                 
CHAIRMAN TAYLOR clarified that under the old Alaska Trust Act, the                                                              
trustee had to locate beneficiaries because it applied to 90 years                                                              
plus lives in being.  The grantor had to specify who those lives in                                                             
being were to make the trust valid or it would fail in less time.                                                               
Usually, a grantor would name the youngest grandchild to maximize                                                               
the trust's duration; the trust could exist for 90 years after the                                                              
youngest grandchild's death. Now, with the abolishment of the rule                                                              
against perpetuities, the trust can last forever.                                                                               
SENATOR DONLEY noted he has no problem with SB 162, SB 165 and SB
166, but his concerns about SB 163 remain.  He suggested putting SB
163 aside.                                                                                                                      
CHAIRMAN TAYLOR agreed and announced SB 162 to be up for                                                                        
discussion.  He informed committee members a proposed committee                                                                 
substitute had been prepared and explained the changes as follows.                                                              
     On page 2, language on lines 22-25 was rewritten for the                                                                   
     purpose of clarification.                                                                                                  
SENATOR ELLIS moved to adopt the proposed committee substitute                                                                  
(work draft Bannister, 5/12/99) as the working document of the                                                                  
committee.  There being no objection, the motion carried.                                                                       
Number 135                                                                                                                      
RICH HOMPESCH, a Fairbanks attorney, explained the language on page                                                             
2, which also appears on page 3, lines 1-3, was rewritten because                                                               
it said, "a general power of appointment is invalid unless...."                                                                 
The new language clarifies that under existing law, powers of                                                                   
appointment that were created after January 1, 1996, up until the                                                               
passage of this bill, cannot be changed.                                                                                        
CHAIRMAN TAYLOR noted that provision applies to the window of                                                                   
opportunity in which trusts were created during that time period.                                                               
MR. HOMPESCH indicated the same change appears on page 2, lines 12-                                                             
SENATOR DONLEY asked for a brief description of the contents of                                                                 
CSSB 162(JUD).                                                                                                                  
MR. HOMPESCH stated prior to the Alaska Trust Act, Alaska law                                                                   
limited the duration of a trust to a life in being plus 21 years,                                                               
which was eventually changed to 90 years.  The Alaska Trust Act                                                                 
provides that if a trustee pays the income or principal to a living                                                             
person when the trust is created, the duration can be forever.                                                                  
This bill eliminates the requirement that the income or principal                                                               
be paid out to a living person when the trust is created before the                                                             
trust can be perpetual so that charitable lead trusts, in which the                                                             
income of the trust is paid to a charitable organization rather                                                                 
than a live person, can exist in perpetuity.                                                                                    
Number 197                                                                                                                      
SENATOR ELLIS moved CSSB 162(JUD) from committee with individual                                                                
recommendations.  There being no objection, the motion carried.                                                                 
Number 208                                                                                                                      
        SB 165-LTD PARTNERSHIPS AND LTD. LIAB. COMPANIES                                                                        
MR. RICH HOMPESCH, a Fairbanks attorney, explained SB 165 provides                                                              
that creditors of a limited partnership, or creditors of a member                                                               
of an LLC, have only one remedy when seeking to attach the member                                                               
or the limited partner's interest in the entity.  That remedy is a                                                              
charging order.  Most people interpreted the law that way, however,                                                             
a recent Connecticut court decision allowed a creditor to foreclose                                                             
on the member's, or the limited partner's, interest.  That creates                                                              
a hardship to the other members of the limited liability company or                                                             
the limited partnership because they suddenly have a new partner,                                                               
which in most cases is very detrimental to the business.                                                                        
SENATOR DONLEY asked what a charging order is.                                                                                  
MR. HOMPESCH replied a charging order gives the judgment creditor                                                               
the right to receive all of the distributions that would have                                                                   
otherwise been paid to the member or the limited partner.                                                                       
SENATOR DONLEY said it sounds like an assignment of interest.                                                                   
CHAIRMAN TAYLOR indicated it is the same thing.                                                                                 
CHAIRMAN TAYLOR asked what rights the change in the law would give                                                              
to the creditor.                                                                                                                
MR. HOMPESCH answered the creditor will receive all of the                                                                      
distributions from the limited liability company or the limited                                                                 
CHAIRMAN TAYLOR asked if the creditor would be able to force a sale                                                             
or liquidation.  MR. HOMPESCH said that is correct.                                                                             
SENATOR DONLEY asked if all distributions go to the creditor.  MR.                                                              
HOMPESCH explained if each of four partners had a 25 percent                                                                    
interest, and one partner had a creditor with a charging order, 25                                                              
percent of the distributions would be paid to the creditor.                                                                     
SENATOR DONLEY moved SB 165 from committee with individual                                                                      
recommendations.  There being no objection, the motion carried.                                                                 
           SB 166-COMMUNITY PROPERTY AGREEMENT/TRUSTS                                                                           
CHAIRMAN TAYLOR informed committee members the Legislature passed                                                               
legislation two years ago that gave spouses the right to elect to                                                               
enter into a community property agreement for their trusts or                                                                   
MR. STEVE NOYE, director of, and lobbyist for, the Alaska Action                                                                
Trust, told committee members a Wisconsin court recently claimed                                                                
the transfer was a gift, as opposed to allowing the double step-up                                                              
in basis, which is a tax free exchange.  SB 166 will prevent a                                                                  
court from claiming that a transfer is a gift as opposed to a non-                                                              
taxable transfer.                                                                                                               
SENATOR DONLEY asked Mr. Noye what transfer he was referring to.                                                                
CHAIRMAN TAYLOR noted the bill refers to a transfer of property                                                                 
upon death.                                                                                                                     
MR. NOYE stated community property states have a double step-up in                                                              
basis, meaning when one spouse dies, the whole estate is revalued                                                               
at current market value in a separate property estate, only the                                                                 
decedent's part of the estate is stepped up to current market value                                                             
and the surviving spouse pays whatever the original basis was.                                                                  
SENATOR DONLEY questioned whether that is determined by federal tax                                                             
law.  MR. NOYE said that is correct.                                                                                            
CHAIRMAN TAYLOR asked if the federal tax law is controlled by the                                                               
state's interpretation of the definition of the property.  MR. NOYE                                                             
said that is correct.                                                                                                           
CHAIRMAN TAYLOR asked if, under Alaska law, the deceased partner's                                                              
portion of the estate is evaluated at the date of death at the                                                                  
stepped up basis and then is conveyed to the spouse; the spouse's                                                               
basis remains the same until she dies, at which time the basis is                                                               
stepped up before it is conveyed, resulting in a higher tax rate                                                                
for the heir.                                                                                                                   
Number 303                                                                                                                      
MARY ELLEN BEARDSLEY, Department of Law, said that is correct,                                                                  
assuming the party held on to the property all of this time.                                                                    
CHAIRMAN TAYLOR noted if the surviving spouse sold the property,                                                                
he/she would not have to pay a lot of capital gains taxes.                                                                      
MS. BEARDSLEY indicated that SB 166 will allow the surviving spouse                                                             
to amend the community property agreement only as it pertains to                                                                
the property she placed into the agreement.                                                                                     
MR. HOMPESCH agreed with Ms. Beardsley and said SB 166 does allow                                                               
the surviving spouse to make changes to her half of the trust or                                                                
the community property agreement.                                                                                               
CHAIRMAN TAYLOR said he thought that if the spouse did not have                                                                 
that ability, he/she would be violative of the holding in the tax                                                               
SENATOR DONLEY moved SB 166 from committee with individual                                                                      
recommendations.  There being no objection, the motion carried.                                                                 
Number 371                                                                                                                      
             HB 177-FOSTER CARE & DELINQUENT MINORS                                                                             
REPRESENTATIVE FRED DYSON, sponsor of HB 177, informed committee                                                                
members HB 375 passed the Legislature in the last hours of the                                                                  
session.  An amendment to HB 375 to allow foster parents access to                                                              
the criminal and behavior records of foster children, a place at                                                                
the table when treatment plans are being developed, and a voice in                                                              
court was adopted but inadvertently applies to Child In Need of Aid                                                             
children only, not to delinquent children.                                                                                      
CHAIRMAN TAYLOR asked Representative Dyson if there is anything he                                                              
dislikes about the bill.  REPRESENTATIVE DYSON said no.                                                                         
SENATOR ELLIS moved CSHB 177(HES) from committee with individual                                                                
recommendations.  There being no objection, the motion carried.                                                                 
There being no further business to come before the committee,                                                                   
CHAIRMAN TAYLOR adjourned the meeting at 2:05 p.m.                                                                              

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