Legislature(2019 - 2020)BELTZ 105 (TSBldg)

02/26/2020 01:30 PM JUDICIARY

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+= SB 55 TEMP. APPOINTMENTS TO COURT OF APPEALS TELECONFERENCED
Moved CSSB 55(2d JUD) Out of Committee
*+ SB 191 TRUSTS, TRUSTEES, COMMUNITY PROPERTY TELECONFERENCED
Heard & Held
*+ SB 192 FIDUCIARY'S ALLOCATION OF CAPITAL GAINS TELECONFERENCED
Scheduled but Not Heard
-- Public Testimony --
                    ALASKA STATE LEGISLATURE                                                                                  
              SENATE JUDICIARY STANDING COMMITTEE                                                                             
                       February 26, 2020                                                                                        
                           1:31 p.m.                                                                                            
                                                                                                                                
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Senator John Coghill, Chair                                                                                                     
Senator Peter Micciche, Vice Chair                                                                                              
Senator Shelley Hughes                                                                                                          
Senator Jesse Kiehl                                                                                                             
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                              
Senator Lora Reinbold                                                                                                           
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
SENATE BILL NO. 55                                                                                                              
"An Act relating to judges of the court of appeals; and                                                                         
providing for an effective date."                                                                                               
                                                                                                                                
     - MOVED CSSB 55(2D JUD) OUT OF COMMITTEE                                                                                   
                                                                                                                                
SENATE BILL NO. 191                                                                                                             
"An  Act  relating  to  trusts   and  trustees,  including  trust                                                               
division, the  powers of trustees,  delayed gifts to  trusts, and                                                               
community property trusts; and providing for an effective date."                                                                
                                                                                                                                
     - HEARD & HELD                                                                                                             
                                                                                                                                
SENATE BILL NO. 192                                                                                                             
"An Act relating to fiduciary discretion and the allocation of                                                                  
capital gains to income under the Alaska Principal and Income                                                                   
Act."                                                                                                                           
                                                                                                                                
     - SCHEDULED BUT NOT HEARD                                                                                                  
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
BILL: SB 55                                                                                                                   
SHORT TITLE: TEMP. APPOINTMENTS TO COURT OF APPEALS                                                                             
SPONSOR(s): SENATOR(s) WILSON                                                                                                   
                                                                                                                                
02/13/19       (S)       READ THE FIRST TIME - REFERRALS                                                                        
02/13/19       (S)       JUD                                                                                                    
03/11/19       (S)       JUD AT 1:30 PM BELTZ 105 (TSBldg)                                                                      
03/11/19       (S)       Heard & Held                                                                                           
03/11/19       (S)       MINUTE(JUD)                                                                                            
03/15/19       (S)       JUD AT 1:30 PM BELTZ 105 (TSBldg)                                                                      
03/15/19       (S)       Moved CSSB 55(JUD) Out of Committee                                                                    
03/15/19       (S)       MINUTE(JUD)                                                                                            
03/18/19       (S)       JUD RPT CS 1DP 2NR 1AM SAME TITLE                                                                      
03/18/19       (S)       DP: HUGHES                                                                                             
03/18/19       (S)       NR: MICCICHE, SHOWER                                                                                   
03/18/19       (S)       AM: KIEHL                                                                                              
03/18/19       (S)       FIN REFERRAL ADDED AFTER JUD                                                                           
03/27/19       (S)       FIN AT 9:00 AM SENATE FINANCE 532                                                                      
03/27/19       (S)       Heard & Held                                                                                           
03/27/19       (S)       MINUTE(FIN)                                                                                            
04/04/19       (S)       FIN AT 9:00 AM SENATE FINANCE 532                                                                      
04/04/19       (S)       Moved CSSB 55(FIN) Out of Committee                                                                    
04/04/19       (S)       MINUTE(FIN)                                                                                            
04/05/19       (S)       FIN RPT CS 3DP 4NR SAME TITLE                                                                          
04/05/19       (S)       DP: VON IMHOF, HOFFMAN, WILSON                                                                         
04/05/19       (S)       NR: STEDMAN, MICCICHE, SHOWER, OLSON                                                                   
02/19/20       (S)       RETURNED TO JUD COMMITTEE UC                                                                           
02/24/20       (S)       JUD AT 1:30 PM BELTZ 105 (TSBldg)                                                                      
02/24/20       (S)       Heard & Held                                                                                           
02/24/20       (S)       MINUTE(JUD)                                                                                            
02/26/20       (S)       JUD AT 1:30 PM BELTZ 105 (TSBldg)                                                                      
                                                                                                                                
BILL: SB 191                                                                                                                  
SHORT TITLE: TRUSTS, TRUSTEES, COMMUNITY PROPERTY                                                                               
SPONSOR(s): SENATOR(s) COGHILL                                                                                                  
                                                                                                                                
02/14/20       (S)       READ THE FIRST TIME - REFERRALS                                                                        
02/14/20       (S)       JUD                                                                                                    
02/26/20       (S)       JUD AT 1:30 PM BELTZ 105 (TSBldg)                                                                      
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
AIMEE BUSHNELL, Staff                                                                                                           
Senator John Coghill                                                                                                            
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT: Delivered the sponsor statement and                                                                       
sectional analysis for SB 191 on behalf of the sponsor.                                                                         
                                                                                                                                
LINDA HULBERT, Agent                                                                                                            
New York Life; Director                                                                                                         
Alaska Trust & Estate Professionals                                                                                             
Fairbanks, Alaska                                                                                                               
POSITION STATEMENT: Testified in support of SB 191.                                                                           
                                                                                                                                
ABIGAIL O CONNOR, Attorney                                                                                                      
O'Connor Law, LLC; Vice President                                                                                               
Alaska Trust & Estate Professionals                                                                                             
Anchorage, Alaska                                                                                                               
POSITION STATEMENT: Testified in support of SB 191.                                                                           
                                                                                                                                
DAVE SHAFTEL, Attorney                                                                                                          
Shaftel Delman, LLC                                                                                                             
Anchorage, Alaska                                                                                                               
POSITION STATEMENT: Testified in support of SB 191.                                                                           
                                                                                                                                
JONATHAN BLATTMACHR, Principal                                                                                                  
ILS Management, LLC                                                                                                             
Long Island, New York                                                                                                           
POSITION STATEMENT: Testified in support of SB 191.                                                                           
                                                                                                                                
KEVIN WALSH, Certified Public Accountant; Co-Owner                                                                              
Walsh, Kelliher & Sharp                                                                                                         
Fairbanks, Alaska                                                                                                               
POSITION STATEMENT: Testified in support of SB 191.                                                                           
                                                                                                                                
JAMIE DELMAN, Attorney                                                                                                          
Shaftel Delman LLC                                                                                                              
Anchorage, Alaska                                                                                                               
POSITION STATEMENT: Testified in support of SB 191.                                                                           
                                                                                                                                
RICH HOMPESCH, Attorney                                                                                                         
Hompesch & Evans                                                                                                                
Fairbanks, Alaska                                                                                                               
POSITION STATEMENT: Testified in support of SB 191.                                                                           
                                                                                                                                
MATTHEW BLATTMACHR, President & Chief Executive Officer                                                                         
Peak Trust Company; President                                                                                                   
Alaska Trust & Estate Professionals                                                                                             
Anchorage, Alaska                                                                                                               
POSITION STATEMENT: Testified in support of SB 191.                                                                           
                                                                                                                                
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
1:31:22 PM                                                                                                                    
CHAIR JOHN COGHILL called the Senate Judiciary Standing                                                                       
Committee meeting to order at 1:31 p.m. Present at call to order                                                                
were Senators Hughes, Micciche, Kiehl, and Chair Coghill.                                                                       
                                                                                                                                
          SB 55-TEMP. APPOINTMENTS TO COURT OF APPEALS                                                                      
                                                                                                                                
1:31:35 PM                                                                                                                    
CHAIR COGHILL  announced that the  first order of  business would                                                               
be SENATE  BILL NO. 55, "An  Act relating to judges  of the court                                                               
of appeals; and providing for an effective date."                                                                               
                                                                                                                                
[The committee adopted  the committee substitute (CS)  for SB 55,                                                               
work  order 31-LS0485\S,  referred to  as version  S, during  the                                                               
previous hearing.]                                                                                                              
                                                                                                                                
1:31:51 PM                                                                                                                    
CHAIR COGHILL said a motion was  made at the last hearing to move                                                               
SB  55, version  S, from  committee.  An objection  was made  and                                                               
maintained.  The questions  members  had related  to whether  the                                                               
bill would  have a referral  to the Senate Finance  Committee. He                                                               
related that he spoke with  the presiding officer. This bill will                                                               
have  a further  referral to  the finance  committee because  the                                                               
bill picked up an additional fiscal impact.                                                                                     
                                                                                                                                
1:32:24 PM                                                                                                                    
CHAIR  HUGHES said  she does  not have  a problem  with adding  a                                                               
fourth judge  to the court  of appeals  because it will  speed up                                                               
the process, which  is good for victims. However,  SB 55, version                                                               
S has  a much higher fiscal  impact, so she appreciates  that the                                                               
bill  has  a further  referral  to  the finance  committee.  That                                                               
committee could consider shared staffing  to reduce the impact or                                                               
determine whether  the court of  appeals requires  the additional                                                               
staffing. She stated support for moving the bill from committee.                                                                
                                                                                                                                
CHAIR COGHILL  said the motion is  on the table. The  question is                                                               
whether the objection maintained.                                                                                               
                                                                                                                                
CHAIR MICCICHE  said the member  who objected is not  present. He                                                               
offered his  support to move  the bill. After a  brief discussion                                                               
on the mechanics  of the motion, he said an  objection was on the                                                               
record.                                                                                                                         
                                                                                                                                
1:34:00 PM                                                                                                                    
At-ease.                                                                                                                        
                                                                                                                                
1:34:19 PM                                                                                                                    
CHAIR COGHILL  reconvened the meeting  and asked for a  roll call                                                               
vote.                                                                                                                           
                                                                                                                                
A roll  call vote  was taken.  Senators Hughes,  Micciche, Kiehl,                                                               
and Coghill voted in favor  of reporting the committee substitute                                                               
for  SB 55,  work order  31-LS0485\S, from  committee. Therefore,                                                               
CSSB 55(2dJUD) was reported from the committee by a 4:0 vote.                                                                   
1:35:05 PM                                                                                                                    
At-ease.                                                                                                                        
                                                                                                                                
          SB 191-TRUSTS, TRUSTEES, COMMUNITY PROPERTY                                                                       
                                                                                                                                
1:39:41 PM                                                                                                                    
CHAIR   COGHILL  reconvened   the  meeting   and  announced   the                                                               
consideration of SENATE BILL NO.  191, "An Act relating to trusts                                                               
and trustees,  including trust division, the  powers of trustees,                                                               
delayed  gifts  to trusts,  and  community  property trusts;  and                                                               
providing for an effective date."                                                                                               
                                                                                                                                
1:39:57 PM                                                                                                                    
CHAIR  COGHILL,  speaking as  sponsor  of  SB  191, said  he  has                                                               
previously introduced trust bills, the  goal of which has been to                                                               
incentivize people to  execute their trusts in  Alaska. This will                                                               
give  Alaska a  competitive edge  over other  states and  provide                                                               
Alaskans  with  the  best trust  options.  This  effort  includes                                                               
having banks  with sufficient funds  to provide  borrowing power,                                                               
and excellent trust laws, he  said. He characterized the world of                                                               
trusts as dynamic  and competitive. This bill  pertains to living                                                               
trusts  and trusts  with substantial  estates. SB  191 is  one of                                                               
three  bills He  said  he  was still  working  on developing  the                                                               
language for SB 192.                                                                                                            
                                                                                                                                
1:43:30 PM                                                                                                                    
AIMEE  BUSHNELL, Staff,  Senator  John  Coghill, Juneau,  Alaska,                                                               
read the sponsor statement for SB 191:                                                                                          
                                                                                                                                
     Senate Bill  191 sets out to  clarify existing language                                                                    
     within Alaska statutes  regarding trust legislation and                                                                    
     add a  new opportunity  to investors to  take advantage                                                                    
     of historically  high estate  and gift  tax exemptions.                                                                    
     Alaska  is one  of the  top  states for  trusts, and  a                                                                    
     long-time leader in adopting  laws to improve investing                                                                    
     opportunities and estate planning.  SB 191 gives Alaska                                                                    
     the opportunity  to continue to draw  in more investors                                                                    
     and keep  those who are  invested in Alaskan  trusts to                                                                    
     remain here.                                                                                                               
                                                                                                                                
     Estate  management   can  be  defined  as   an  art  of                                                                    
     directing  and  supervising  one's  interest  in  land,                                                                    
     property,  or  other  securities in  order  to  achieve                                                                    
     optimum  returns. In  law, a  trust  is a  relationship                                                                    
     where assets  or property  are held  by one  party, the                                                                    
     trustee, for the  benefit of another party.  A trust is                                                                    
     created  by  the  owner, also  called  a  "settlor"  or                                                                    
     "trustor"  who transfers  property  to  a trustee.  The                                                                    
     trustee   holds   that   property   for   the   trust's                                                                    
     beneficiaries.                                                                                                             
                                                                                                                                
     This   bill  offers   clarification   on  four   things                                                                    
     regarding trusts  and trustees in the  State of Alaska.                                                                    
     First, it  clarifies existing powers a  trustee already                                                                    
     has,  placing   the  ability  to  divide   trusts  into                                                                    
     statute.   Second,  the   bill  clarifies   two  powers                                                                    
     trustees  may  act  upon,   including  the  ability  to                                                                    
     purchase  fiduciary insurance  and allow  discretionary                                                                    
     distribution to  be made  from realized  capital gains.                                                                    
     Third, it  gives the ability  to charge  costs incurred                                                                    
     from the duties on that list to the trust.                                                                                 
                                                                                                                                
     The  fourth  and  final clarification  this  bill  also                                                                    
     offers is in relation  to community property in trusts.                                                                    
     The  primary  purpose  of Alaska's  optional  community                                                                    
     property system is  to obtain an income  tax benefit on                                                                    
     property  when the  first  spouse  dies. To  accomplish                                                                    
     this   purpose,  appreciation   and   income  must   be                                                                    
     characterized   as   community   property.   Currently,                                                                    
     appreciation and income made  from a community property                                                                    
     trust  must   be  specifically  claimed   as  community                                                                    
     property.  The proposed  changes have  the income  made                                                                    
     from the community  property be automatically community                                                                    
     property  unless expressly  stated otherwise,  allowing                                                                    
     for easier management of the assets in the trust.                                                                          
                                                                                                                                
                                                                                                                                
1:45:48 PM                                                                                                                    
     The  'gift  promise'  section  of the  bill  is  a  new                                                                    
     concept.  This  new  language   would  provide  that  a                                                                    
     promise to make a gift  to a trust is enforceable under                                                                    
     Alaska  law  and  may  be   treated  as  a  note  or  a                                                                    
     negotiable instrument after 180  days. The promise need                                                                    
     not be backed by  consideration (a transfer of property                                                                    
     or cash),  so long  as the promise  is to  a qualifying                                                                    
     trust,  in writing,  references  the specific  statute,                                                                    
     expresses  intent to  be legally  bound, and  the money                                                                    
     will  be  transferred  within  nine  months  after  the                                                                    
     person's  death.  This  additional section  will  allow                                                                    
     taxpayers  throughout the  United States  to use  their                                                                    
     current estate  and gift tax  exemptions, which  are at                                                                    
     historic  highs,   without  having   to  give   up  the                                                                    
     ownership of  property until later when  the promise is                                                                    
     fulfilled.                                                                                                                 
                                                                                                                                
1:46:54 PM                                                                                                                    
SENATOR  COGHILL  said  staff has  provided  some  background  on                                                               
trusts, highlighting  the four changes  the bill  will accomplish                                                               
plus a new concept, the ["gift promise" in Section 4].                                                                          
                                                                                                                                
1:48:30 PM                                                                                                                    
LINDA HULBERT,  Agent, New  York Life;  Director, Alaska  Trust &                                                               
Estate Professionals,  Fairbanks, Alaska, spoke in  support of SB                                                               
191.  She stated  that she  has been  an Alaska  resident for  50                                                               
years and  a life  insurance agent for  30 years.  She represents                                                               
clients  in  Anchorage  and  Fairbanks,   with  offices  in  both                                                               
communities.  Alaska Trust  & Estate  Professionals is  the group                                                               
that helped draft the bill.                                                                                                     
                                                                                                                                
She highlighted  the value of  the Alaska  Trust Act and  what it                                                               
can  accomplish in  the  future. She  explained  that the  Alaska                                                               
Trust concept  has created jobs,  bringing in  substantial assets                                                               
and tax income  to Alaska. She offered her view  that it has been                                                               
a  very  positive  influence in  the  state.  Alaska's  statutory                                                               
framework for  trusts has  put Alaska in  the forefront  of will,                                                               
trusts and estate planning. However,  other states that have seen                                                               
Alaska's success  have followed  suit in  some of  the activities                                                               
and laws in Alaska.                                                                                                             
                                                                                                                                
She said this bill could  create opportunities for Alaska to stay                                                               
in the forefront of planning  throughout the nation. This bill is                                                               
really  important for  her clients  and Alaskans.  It will  allow                                                               
them to  pass along assets that  are deeply rooted in  the family                                                               
to their children and grandchildren.                                                                                            
                                                                                                                                
1:51:20 PM                                                                                                                    
MS. BUSHNELL read the sectional analysis for SB 191:                                                                            
                                                                                                                                
     Sec. 1  AS 13.36                                                                                                         
     Adds new a  section that changes the  default of trusts                                                                    
     to allow  for easier trust division.  Providing that if                                                                    
     more   than  one   settlor  created   the  trust,   the                                                                    
     contributions  from each  settlor are  well documented,                                                                    
     as are  the earnings  and reinvestments, and  the trust                                                                    
     is governed by Alaska State Law.                                                                                           
                                                                                                                                
     Sec. 2  AS 13.36.109                                                                                                     
     Clarifies  the  specific   powers  of  trustees  (those                                                                    
     responsible for  the trust  fund) to  include insurance                                                                    
     against liability with respect  to the beneficiaries as                                                                    
     an  expressly  allowed  expense   to  the  trust.  This                                                                    
     section  also clarifies  that a  trustee  may treat  or                                                                    
     deem,  within the  meaning  of  United States  Treasury                                                                    
     Regulation     Section    1.643(a)-3,     discretionary                                                                    
     distributions  as  first   coming  from  capital  gains                                                                    
     realized during the year.                                                                                                  
                                                                                                                                
1:52:22 PM                                                                                                                    
     Sec. 3  AS 13.36.109                                                                                                     
     Adds a  new subsection, allowing  a trustee to  pay for                                                                    
     the  authorized   actions  mentioned  earlier   in  the                                                                    
     section with funds from the trust itself.                                                                                  
                                                                                                                                
     Sec. 4  AS 13.36.305                                                                                                     
     Adds  new a  section outlining  the ability  to make  a                                                                    
     promise of  a gift  enforceable in relation  to trusts.                                                                    
     The promise must be to  a qualifying trust, in writing,                                                                    
     reference this  statute, express  intent to  be legally                                                                    
     bound,  the  money  will  be  transferred  within  nine                                                                    
     months after the person's death,  and after 180 days of                                                                    
     the  promise,  it  may  be  treated as  a  note  and  a                                                                    
     negotiable instrument. This  section also outlines what                                                                    
     a qualifying  trust is: that  it intends to be  a trust                                                                    
     governed by  Alaska law, it  contains at  least $10,000                                                                    
     of  principal  assets  deposited within  the  state  of                                                                    
     Alaska and has at least one trustee in the state.                                                                          
                                                                                                                                
     Sec. 5  AS 34.77.030                                                                                                     
     Clarifies the  original intent of the  existing statute                                                                    
     regarding  community  property,   stating  that  unless                                                                    
     expressly  declared non-community  property, individual                                                                    
     or  otherwise, appreciation  and  income  accrued in  a                                                                    
     community  property  trust   is  assumed  to  community                                                                    
     property.                                                                                                                  
                                                                                                                                
     Sec. 6  Uncodified Law                                                                                                   
     Adds a new section to  the uncodified law, stating that                                                                    
     sections  1-4  become  effective following  the  normal                                                                    
     effective date procedure as outlined in AS 01.10.070.                                                                      
                                                                                                                                
     Sec. 7  Uncodified Law                                                                                                   
     Adds  a new  section to  the uncodified  law, a  saving                                                                    
     clause,  stating   that  Section  5  does   not  affect                                                                    
     actions,  proceedings, or  rights accrued  on or  after                                                                    
     May 23,  1998, the  year the Alaska  Community Property                                                                    
     Act  was  created  and  placed   into  law.  Sec.  8                                                                       
     Uncodified  Law  Section   5,  dealing  with  community                                                                    
     property, is retroactive to May  23, 1998, the year the                                                                    
     Alaska Community  Property Act  was created  and placed                                                                    
     into law                                                                                                                   
                                                                                                                                
     Sec. 8  Uncodified Law                                                                                                   
     Section   5,  dealing   with  community   property,  is                                                                    
     retroactive  to  May  23, 1998,  the  year  the  Alaska                                                                    
     Community  Property Act  was  created  and placed  into                                                                    
     law.                                                                                                                       
                                                                                                                                
     Sec. 9  Effective Date                                                                                                   
     Sections 5 and 8 of this Act take effect immediately.                                                                      
                                                                                                                                
1:54:33 PM                                                                                                                    
CHAIR COGHILL asked her to  explain the reason that applicability                                                               
goes back to 1998.                                                                                                              
                                                                                                                                
MS. BUSHNELL answered that this  bill follows the rules that were                                                               
created  in Alaska  for  community property,  so  all income  and                                                               
appreciation will be  community property. There won't  be a trust                                                               
caught in  the middle, subject to  different provisions. Instead,                                                               
the trusts will all be treated in the same way.                                                                                 
                                                                                                                                
CHAIR COGHILL commented that this is a prospective action.                                                                      
                                                                                                                                
1:56:35 PM                                                                                                                    
ABIGAIL O  CONNOR, Attorney, O'Connor  Law, LLC;  Vice President,                                                               
Alaska Trust  & Estate  Professionals, Anchorage,  Alaska, stated                                                               
that  every time  she  represents  a new  trustee  and drafts  or                                                               
administers a new  trust, she has found herself  wishing for more                                                               
clarification in the  law on certain things. Although  it is very                                                               
difficult  to predict  everything  that could  ever happen,  this                                                               
bill  will provide  additional clarification  in the  trust laws.                                                               
She  directed attention  to Section  1  of the  bill that  allows                                                               
assets to  be divided into  separate trusts. She currently  has a                                                               
trust that  has two different  people contributing assets  to the                                                               
trust, so that  their contributions are very easy  to trace. This                                                               
bill will  make it much simpler  to divide the trust,  which will                                                               
be  very helpful  to beneficiaries.  In some  settings, different                                                               
tax attributes  apply. In such  instances, the goal is  to divide                                                               
the trust so one trust has one  tax attribute and the other has a                                                               
different  tax  attribute, yet  overall  to  save taxes  for  the                                                               
beneficiaries.                                                                                                                  
                                                                                                                                
She  said Section  2 will  allow  and clarify  that trustees  can                                                               
obtain trustee  insurance, similar  to a  personal representative                                                               
of a state  obtaining a bond. This will allow  trustees to better                                                               
protect   themselves  and   their  beneficiaries   by  purchasing                                                               
insurance in case  claims are brought by  the beneficiaries. This                                                               
can result in the state  attracting better trustees. It also will                                                               
allow  trustees   to  treat  discretionary  distributions   to  a                                                               
beneficiary  as being  made first  from capital  gains, which  is                                                               
also  helpful.  The bill  replaces  the  passive "consider"  with                                                               
"treat"  which is  more  active. This  provision  will allow  the                                                               
trustees  to  make tax  decisions  that  could ultimately  reduce                                                               
their income taxes.  Even though this can  currently occur, using                                                               
the  term  "treat" more  accurately  captures  what the  treasury                                                               
regulations had in mind, she said.                                                                                              
                                                                                                                                
2:00:10 PM                                                                                                                    
MS. O'CONNOR said  the IRS currently allows  for an unprecedented                                                               
estate  tax  exemption  for  all individuals  in  the  U.S.  That                                                               
exemption  will be  reduced by  half in  2026, so  people have  a                                                               
limited time to take advantage  of this estate tax exemption. Her                                                               
clients are trying to take  advantage of this opportunity yet not                                                               
disadvantage   other  parts   of  their   estate  planning.   She                                                               
characterized the  promise to  transfer money into  a trust  as a                                                               
good concept.                                                                                                                   
                                                                                                                                
Safeguards were built into Section 4  of the bill so someone will                                                               
not inadvertently  make a  promise to transfer  money as  a gift,                                                               
that the  person would  not normally be  held to.  This provision                                                               
requires the  promise of  a gift  to be  in writing,  signed, and                                                               
delivered to the  trustee. It's important to  ensure that whoever                                                               
is making  this promise understands the  irrevocable implications                                                               
of  the  statute,   so  the  statute  must   be  referenced.  The                                                               
individual  must indicate  an understanding  that  the person  is                                                               
legally   bound  by   the  promise.   This   bill  balances   the                                                               
opportunities  for  Alaskans  and non-Alaskans  to  use  Alaska's                                                               
trust  statutes  to bring  money  into  the state  by  protecting                                                               
people from mistakenly  making the promise of a  gift that cannot                                                               
be undone.                                                                                                                      
                                                                                                                                
2:02:22 PM                                                                                                                    
SENATOR MICCICHE  referred to the insurance  provision in Section                                                               
2 [AS 13.36.109(17)].  He asked if this provision  was limited to                                                               
insurance against claims brought by beneficiaries.                                                                              
                                                                                                                                
MS.  O'CONNOR  answered  that  although  trustees  can  currently                                                               
obtain insurance, most  trustees do not do so. While  there is no                                                               
express prohibition in the statute,  this language clarifies that                                                               
trustees are  able to  obtain insurance  in case  the beneficiary                                                               
were  to bring  an action  against them.  Further, it  allows the                                                               
trustee  to use  the  trust  funds to  pay  for  the policy.  She                                                               
compared   this   provision  to   the   one   where  a   personal                                                               
representative is  often required  to get a  bond in  estates and                                                               
probate law.                                                                                                                    
                                                                                                                                
2:03:39 PM                                                                                                                    
SENATOR MICCICHE asked if this  change would allow the trustee to                                                               
insure any  real asset in the  trust at the expense  of the trust                                                               
itself.                                                                                                                         
                                                                                                                                
MS.  O'CONNOR explained  that currently  trustees can  insure the                                                               
assets in a trust. This language  would simply allow them to also                                                               
insure against a breach of trust action by a beneficiary.                                                                       
                                                                                                                                
SENATOR  MICCICHE  referred to  Section  1.  He asked  how  often                                                               
contributions  [to trusts]  by individuals  are well  documented,                                                               
splitting out  the earnings and  reinvestments. He  asked whether                                                               
that is normally a clear path.                                                                                                  
                                                                                                                                
MS.  O'CONNOR said  she was  unsure if  it is  normal because  it                                                               
greatly  depends  on  the grantors,  the  settlors  creating  the                                                               
trusts, and the trustee records. More  often than not, there is a                                                               
fairly clear  path. However,  she has  also seen  instances where                                                               
there is no clear  notion as to how the assets  were put into the                                                               
trust. In those  cases, the provision to allow for  a trust to be                                                               
divided into two or more trusts would not be available.                                                                         
                                                                                                                                
2:05:16 PM                                                                                                                    
SENATOR KIEHL asked whether  an attorney's professional liability                                                               
insurance  covers lawsuits  by beneficiaries  of the  trust where                                                               
she serves as the trustee.                                                                                                      
                                                                                                                                
MS. O'CONNOR  answered that her malpractice  insurance covers her                                                               
when she  serves as  a trustee.  However, she  was unsure  if all                                                               
malpractice insurance covers attorneys serving trustees.                                                                        
                                                                                                                                
2:06:01 PM                                                                                                                    
SENATOR  KIEHL asked  if she  believes this  change is  necessary                                                               
because  she perceives  a prohibition  for trustees  charging the                                                               
trust for malpractice insurance.                                                                                                
                                                                                                                                
MS. O'CONNOR  replied she  does not see  a prohibition,  but this                                                               
language provides  clear permissive language. When  a beneficiary                                                               
sees  a  line  item  for  insurance,  it  is  clear  that  it  is                                                               
allowable, she said.                                                                                                            
                                                                                                                                
SENATOR COGHILL referred  to Section 4 related to  the promise of                                                               
transfer of  gifts. He asked  what the exit strategy  the trustee                                                               
has to make any changes to the gift.                                                                                            
                                                                                                                                
MS. O'CONNOR  said she was  not sure  there is an  exit strategy.                                                               
She explained that  the promise of a gift must  be irrevocable in                                                               
order to use this exemption.                                                                                                    
                                                                                                                                
CHAIR  COGHILL  asked the  record  to  reflect that  people  must                                                               
understand that [Section 4 establishes] an irrevocable gift.                                                                    
                                                                                                                                
2:08:03 PM                                                                                                                    
SENATOR  MICCICHE  expressed  concern  that  that  provisions  in                                                               
Section  4 might  conflict with  federal  tax law.  He related  a                                                               
scenario in  which a person  makes a promise  of a gift,  but the                                                               
trustee's asset  may lose  value due  to market  corrections. The                                                               
person will have received the  federal tax deduction but then the                                                               
asset loses value.  He asked how the trust law  would address the                                                               
circumstance in  which the promise  of a  $5 million gift  is now                                                               
worth $60,000.                                                                                                                  
                                                                                                                                
MS.  O'CONNOR said  she envisioned  the gifts  would be  gifts of                                                               
money.  She referred  to  the language  in  [AS 13.36.305(a)  and                                                               
read,  "if a  person promises  to transfer  a specific  amount of                                                               
money." This would not necessarily be another type of asset.                                                                    
                                                                                                                                
MS. BUSHNELL added that [the gift]  is in the form of a contract,                                                               
such that  the person will  write a  promise, but the  trust must                                                               
accept  it. She  said if  the trust  views it  as a  business and                                                               
could discern that  the asset would not retain its  value in two,                                                               
five  or  ten years,  the  trust  will  not  want to  accept  the                                                               
promissory note since it would not be seen as beneficial.                                                                       
                                                                                                                                
SENATOR  MICCICHE  expressed  concern   that  this  provision  is                                                               
largely directed at money.                                                                                                      
                                                                                                                                
2:11:20 PM                                                                                                                    
DAVE SHAFTEL,  Attorney, Shaftel Delman, LLC,  Anchorage, Alaska,                                                               
spoke in support of SB 191.  He noted that he has practiced trust                                                               
and  estate  law  in  Alaska  for  over  30  years.  He  did  not                                                               
participate in  drafting all  of the  provisions since  his focus                                                               
has been  on the  community property provision  in Section  5. He                                                               
deferred  to  Jamie  Delman and  Jonathan  Blattmachr  to  answer                                                               
questions on the promise to transfer money to the trust.                                                                        
                                                                                                                                
2:13:14 PM                                                                                                                    
JONATHAN  BLATTMACHR,   Principal,  ILS  Management,   LLC,  Long                                                               
Island, New York,  characterized SB 191 as a very  good bill that                                                               
will continue  to put Alaska  on top.  It will continue  to bring                                                               
business  and money  into  Alaska, he  said.  Every time  someone                                                               
creates an  Alaska trust, the  individual is required  to deposit                                                               
certain  funds in  the state.  At any  given time,  this provides                                                               
between  $50  million  and $100  million  to  Alaska's  financial                                                               
institutions to use for loans or to help businesses.                                                                            
                                                                                                                                
He turned  to the  concerns raised about  the Alaska  gift trust,                                                               
which  is  a  new  concept  [in  Section  4].  It  provides  that                                                               
individuals have an opportunity to  use a very high tax exemption                                                               
although not everyone can afford to  give away even a fraction of                                                               
the current, allowable $11 million  exemption. He reiterated that                                                               
this exemption will  be reduced in 2026. In fact,  it is possible                                                               
that with  a potential change in  administrations, this exemption                                                               
could  be cut  back  even  sooner. This  exemption  will allow  a                                                               
person to  make a  completed gift for  federal gift  tax purposes                                                               
while  still retaining  the  assets. When  the  person dies,  the                                                               
trust will pay the promise of  the gift. Alaska will be the first                                                               
state to  do so.  He offered  his view that  [SB 191]  would make                                                               
Alaska a very sophisticated trust  and estate jurisdiction in the                                                               
country.                                                                                                                        
                                                                                                                                
2:15:12 PM                                                                                                                    
SENATOR KIEHL  asked if any  safeguards exist to  prevent someone                                                               
from taking the tax benefit. He  suggested the person could be "a                                                               
bad character," who  actually does not have the cash.  He did not                                                               
recall  that the  bill requires  that  the money  subject to  the                                                               
promise exists.                                                                                                                 
                                                                                                                                
MR. J. BLATTMACHR responded that  he believes a safeguard exists.                                                               
He  related a  scenario  in which  a person  has  $3 million  but                                                               
wanted to  use the  entire allowable  $11 million  tax exemption,                                                               
because  the person  hopes to  have $11  million when  the person                                                               
dies and the  note is due. At that time  the trustee will present                                                               
the $11  million note  for payment. If  the person's  estate only                                                               
consists of  $3 million, that would  be the amount paid  into the                                                               
trust. There won't be any adverse  effect, but the person has the                                                               
opportunity not  to just to  cover what  he or she  currently has                                                               
but  to anticipate  future  gains,  which could  be  up to  $11.5                                                               
million.                                                                                                                        
                                                                                                                                
2:17:38 PM                                                                                                                    
KEVIN WALSH, Certified Public  Accountant (CPA); Co-Owner, Walsh,                                                               
Kelliher & Sharp, Fairbanks, Alaska,  spoke in support of SB 191.                                                               
He said he  is a longtime member and past  president of Fairbanks                                                               
Estate  Planning Council  and a  member of  the Alaska  Trust and                                                               
Estate Professionals Group.  He has been involved  in tax matters                                                               
his  entire  career. His  firm  regularly  deals with  trust  and                                                               
estate matters for  clients all over Alaska. The  income gift and                                                               
estate taxes  of the United  States applies federal tax  rules to                                                               
property as  defined and governed  by state law.  Improvements to                                                               
Alaska  law governing  trust  and estates  can  only improve  the                                                               
efficiency  with  which  these  trusts  operate.  When  there  is                                                               
clarity  of  law,  it  reduces controversy  and  saves  money  on                                                               
accounting,  legal,  and  trustee  fees.  He  said  Ben  Franklin                                                               
supposedly  indicated two  certainties in  life, which  are death                                                               
and taxes. This bill can help  reduce the certainty of the amount                                                               
of taxes  one might  pay by  allowing Alaska law  to be  the most                                                               
efficient  possible  and  for  Alaskan   citizens  to  take  full                                                               
advantage  of  any  opportunity   to  reduce  their  federal  tax                                                               
burdens.                                                                                                                        
                                                                                                                                
SENATOR COGHILL stated his intention  to hold SB 191 in committee                                                               
since this was the first hearing.                                                                                               
                                                                                                                                
2:19:47 PM                                                                                                                    
JAMIE DELMAN,  Attorney, Shaftel  Delman LLC,  Anchorage, Alaska,                                                               
said he  was involved in  drafting many  of the provisions  in SB                                                               
191.  He directed  attention to  questions raised  in Section  4,                                                               
which was referred  to as the Alaska "gift  trust" provision. One                                                               
earlier question  was what happens if  a promise is made  but the                                                               
expected  property or  the estate  is reduced  in value  prior to                                                               
paying on  the promise. He related  a scenario in which  a client                                                               
makes a promise of $2 million  to an Alaska trust. The client has                                                               
assets but  is unsure of which  one to convert to  money, but the                                                               
person wants to take advantage  of the high exemption amount [for                                                               
federal tax purposes]. If the  estate contracts in value over the                                                               
next  20 years,  the  person  will have  used  the $11.4  million                                                               
exemption. However, the client would  not need the full exemption                                                               
if  the estate  value  has contracted.  He  agreed with  Jonathan                                                               
Blattmachr  that there  is no  real harm  in the  contraction. He                                                               
offered his support for SB 191.                                                                                                 
                                                                                                                                
2:22:18 PM                                                                                                                    
SENATOR MICCICHE  said he  understood the case,  but it  does not                                                               
answer his concern.  He offered to put his  questions in writing.                                                               
He was not  aware of any other situation where  someone can enjoy                                                               
a  federal tax  exemption from  dollars that  potentially do  not                                                               
exist without  being subject to  penalties. He  acknowledged that                                                               
he could be wrong.                                                                                                              
                                                                                                                                
2:23:28 PM                                                                                                                    
SENATOR  KIEHL  referred  to  Section   4.  He  referred  to  [AS                                                               
13.36.305](c) that  states, "when 180  days have elapsed  after a                                                               
person delivers a promise to a  trust ?" He asked what happens to                                                               
the gift  if someone dies  before the  180 days lapses,  prior to                                                               
the gift being placed into the trust.                                                                                           
                                                                                                                                
MR. DELMAN  answered that if  someone died  on day 90,  the trust                                                               
would still have an enforceable  obligation against the estate of                                                               
the person who died.                                                                                                            
                                                                                                                                
SENATOR KIEHL asked what benefit is derived on day 181.                                                                         
                                                                                                                                
MR. DELMAN answered  that [AS 13.36.305(c) cites  AS 45.03] which                                                               
provides  trustees guidance  as to  what  they can  do with  this                                                               
asset on day  181. This obligation is being created  by using the                                                               
new  statutory  provision  but   referencing  AS  45.03  provides                                                               
instruction  on how  the property  can be  transferred, sold,  or                                                               
negotiated.                                                                                                                     
                                                                                                                                
SENATOR  COGHILL  suggested that  what  he  probably needs  is  a                                                               
"white paper"  on Section 4,  in terms of  how it would  work for                                                               
time periods and for assets.                                                                                                    
                                                                                                                                
2:26:29 PM                                                                                                                    
RICH  HOMPESCH, Attorney,  Hompesch &  Evans, Fairbanks,  Alaska,                                                               
spoke in  support of SB  191. He responded to  Senator Micciche's                                                               
question  about the  diminution in  the value  from the  date the                                                               
gift is  made until death.  He understood the purpose  of Section                                                               
4,  or the  "Alaska gift  trust"  is so  the person  can use  the                                                               
federal tax  exemption of  $11 million  before the  window closes                                                               
and  the  exemption is  reduced  on  December  31, 2025.  If  the                                                               
estate's value  is reduced in  the meantime, the person  does not                                                               
have an  estate tax problem, so  it does not matter.  The idea is                                                               
to address the estate that grows  beyond the exemption so use the                                                               
exemption before  it is reduced  under federal law.  He concurred                                                               
with testimony given by the previous testifiers.                                                                                
                                                                                                                                
SENATOR COGHILL suggested that the  committee might need a primer                                                               
on the tax requirements.                                                                                                        
                                                                                                                                
2:28:51 PM                                                                                                                    
MATTHEW  BLATTMACHR, President  & Chief  Executive Officer,  Peak                                                               
Trust Company;  President, Alaska  Trust &  Estate Professionals,                                                               
Anchorage,  Alaska, spoke  in  support  of SB  191.  He said  the                                                               
Alaska legislature has a 24-year  legacy of reviewing [estate and                                                               
trust] bills.  This bill will  clarify Alaska law and  adding the                                                               
"gift  trust" concept,  which is  new  under any  state law  will                                                               
improve planning options for Alaskans.                                                                                          
                                                                                                                                
2:29:51 PM                                                                                                                    
SENATOR  COGHILL remarked  that he  would like  to frame  the tax                                                               
question prospectively, such that an  asset that may not have the                                                               
same value when the person dies as when it was gifted.                                                                          
                                                                                                                                
2:30:35 PM                                                                                                                    
SENATOR KIEHL  asked if he could  quantify the size of  the trust                                                               
industry  in Alaska,  such as  the number  of jobs,  trust assets                                                               
from nonresidents,  and any  figures on  the rate  of anticipated                                                               
growth.                                                                                                                         
                                                                                                                                
MR.  M.  BLATTMACHR responded  that  there  are several  ways  to                                                               
quantify the  trust industry in  Alaska, including the  number of                                                               
trusts, the  assets in banks,  and the number of  people employed                                                               
by  the industry.  Several years  ago, a  bill dealing  with life                                                               
insurance  premium tax  included  estimates that  about 350  jobs                                                               
were directly related to the  industry and the state collected $7                                                               
million in direct  taxes on life insurance policies.  At the time                                                               
it was the  second largest contributor to the  general fund. This                                                               
also doesn't take into consideration  those indirectly related to                                                               
the industry, such as attorneys  or accountants whose practice is                                                               
incidental to trusts.  He said he could speak to  assets in terms                                                               
of  Peak Trust,  but the  scope goes  beyond their  practice. For                                                               
example, the First  National Bank of Alaska's  trust company also                                                               
generates  assets.  He  reported   that  Peak  Trust  has  static                                                               
deposits  of   well  over  $100   million  in   Alaska's  banking                                                               
institutions and  2,500 trusts. This  does not take  into account                                                               
other  trust  companies, such  as  First  National Bank's  trust,                                                               
where  Alaska  residents  as individuals  are  the  trustees.  He                                                               
offered to provide more information on gross figures.                                                                           
                                                                                                                                
2:33:49 PM                                                                                                                    
SENATOR MICCICHE  said he supports  improving the  trust policies                                                               
and he recognizes the value to the state.                                                                                       
                                                                                                                                
He  asked   for  assurance  that   the  Alaska  Trust   &  Estate                                                               
Professionals   had  thoroughly   thought  through   the  gifting                                                               
provision.  He expressed  concern that  the person  promising the                                                               
gift might  not have  sufficient funds  in his  or her  estate to                                                               
satisfy  the amount  promised in  the will.  The person  may make                                                               
decisions later  on in  life, after  the promise  of the  gift is                                                               
made, that  adversely affect  the estate to  the extent  that the                                                               
person's liabilities at  the time of his or her  death exceed the                                                               
promise  to the  trust. He  said he  was unsure  of the  order or                                                               
priority to satisfy the trust.                                                                                                  
                                                                                                                                
SENATOR  COGHILL  suggested  his   concern  could  be  framed  by                                                               
considering  how  other conflicts  would  be  handled in  general                                                               
trust management in terms of the promise of a gift to the trust.                                                                
                                                                                                                                
He  said his  goal  with SB  191 is  to  keep Alaska  attractive,                                                               
ensure  that  beneficiaries  benefit,   and  provide  clarity  in                                                               
statute for businesses.                                                                                                         
                                                                                                                                
SENATOR  COGHILL  indicated  the  bill would  be  set  aside.  He                                                               
referred to Section 2, page 5, lines 9 - 10, which read:                                                                        
                                                                                                                                
      (29) to treat [CONSIDER] discretionary distributions                                                                    
       to a beneficiary as being made first from capital                                                                      
     gains realized during the year.                                                                                            
                                                                                                                                
He asked the  Alaska Trust & Estate Professionals  to explain how                                                               
distributions were  previously made and the  reason to prioritize                                                               
them as "first".                                                                                                                
                                                                                                                                
2:38:11 PM                                                                                                                    
CHAIR COGHILL held SB 191 in committee.                                                                                         
                                                                                                                                
2:38:40 PM                                                                                                                    
There being  no further  business to  come before  the committee,                                                               
Chair Coghill  adjourned the Senate Judiciary  Standing Committee                                                               
meeting at 2:38 p.m.                                                                                                            

Document Name Date/Time Subjects
O'Connor Law LLC Letter of Support SB 191.pdf SJUD 2/26/2020 1:30:00 PM
SB191 ver. A.PDF SJUD 2/26/2020 1:30:00 PM
SB 191
Walsh, Kelliher & Sharp Letter of Support for SB191.pdf SJUD 2/26/2020 1:30:00 PM
SB191 Sponsor Statement.pdf SJUD 2/26/2020 1:30:00 PM
Shaftel Delman LLC Letter of Support SB191.pdf SJUD 2/26/2020 1:30:00 PM
SB191 Sectional Analysis.pdf SJUD 2/26/2020 1:30:00 PM
Peak Trust Company Letter of Suport SB191.pdf SJUD 2/26/2020 1:30:00 PM
Fiscal Note SB 191-LAW-CIV-2-21-20.pdf SJUD 2/26/2020 1:30:00 PM
ATEP Letter of Support SB191.pdf SJUD 2/26/2020 1:30:00 PM
Richard W. Hompesch II Letter of Support SB191.pdf SJUD 2/26/2020 1:30:00 PM