Legislature(2013 - 2014)BELTZ 105 (TSBldg)
04/04/2013 02:30 PM Senate JUDICIARY
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| SB65 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 65 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
SENATE JUDICIARY STANDING COMMITTEE
April 4, 2013
2:37 p.m.
MEMBERS PRESENT
Senator John Coghill, Chair
Senator Lesil McGuire, Vice Chair
Senator Fred Dyson
Senator Donald Olson
Senator Bill Wielechowski
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
SENATE BILL NO. 65
"An Act relating to property exemptions for retirement plans,
individual retirement amending Rule 64, Alaska Rules of Civil
Procedure, and Rule 301(a), Alaska Rules of accounts, and Roth
IRAs; relating to transfers of individual retirement plans;
relating to Evidence." the rights of judgment creditors of
members of limited liability companies and partners of limited
liability partnerships; relating to the Uniform Probate Code,
including pleadings, orders, liability, and notices under the
Uniform Probate Code and the Alaska Principal and Income Act,
the appointment of trust property, the Alaska Uniform Prudent
Investor Act, co-trustees, trust protectors, and trust advisors;
relating to the Alaska Principal and Income Act; relating to the
Alaska Uniform Transfers to Minors Act; relating to the
disposition of human remains; relating to the tax on insurers
for life insurance policies; relating to insurable interests for
certain insurance policies; relating to restrictions on
transfers of trust interests; relating to discretionary
interests in irrevocable trusts; relating to the community
property of married persons; and
- HEARD & HELD
PREVIOUS COMMITTEE ACTION
BILL: SB 65
SHORT TITLE: RETIREMENT PLANS; ROTH IRAS; PROBATE
SPONSOR(s): SENATOR(s) COGHILL
02/27/13 (S) READ THE FIRST TIME - REFERRALS
02/27/13 (S) L&C, JUD
03/21/13 (S) L&C AT 1:30 PM BELTZ 105 (TSBldg)
03/21/13 (S) Heard & Held
03/21/13 (S) MINUTE(L&C)
03/26/13 (S) L&C AT 1:30 PM BELTZ 105 (TSBldg)
03/26/13 (S) Moved CSSB 65(L&C) Out of Committee
03/26/13 (S) MINUTE(L&C)
03/27/13 (S) L&C RPT CS 2DP 2NR SAME TITLE
03/27/13 (S) DP: DUNLEAVY, ELLIS
03/27/13 (S) NR: OLSON, MICCICHE
04/01/13 (S) JUD AT 1:30 PM BELTZ 105 (TSBldg)
04/01/13 (S) Heard & Held
04/01/13 (S) MINUTE(JUD)
04/03/13 (S) JUD AT 1:30 PM BELTZ 105 (TSBldg)
04/03/13 (S) Heard & Held
04/03/13 (S) MINUTE(JUD)
04/04/13 (S) JUD AT 2:30 PM BELTZ 105 (TSBldg)
WITNESS REGISTER
BETH CHAPMAN, Attorney
Juneau, AK
POSITION STATEMENT: Provided a sectional analysis of SB 65.
DAVID SHAFTEL, Attorney
Anchorage, AK
POSITION STATEMENT: Provided a sectional analysis of SB 65.
ACTION NARRATIVE
2:37:09 PM
CHAIR JOHN COGHILL called the Senate Judiciary Standing
Committee meeting to order at 2:37 p.m. Present at the call to
order were Senators McGuire, Dyson, Wielechowski, and Chair
Coghill.
SB 65-RETIREMENT PLANS; ROTH IRAS; PROBATE
2:37:15 PM
CHAIR COGHILL announced the consideration of SB 65. [Version O
was before the committee.]
SENATOR OLSON joined the committee.
2:37:50 PM
BETH CHAPMAN, Attorney, stated that she practices in the area of
estate planning and has an office in Juneau. She explained that
she would discuss the bill sections according to subject matter.
CHAIR COGHILL noted that David Shaftel and Douglas Blattmachr
were available on-line to add to the discussion.
MS. CHAPMAN provided the following sectional analysis:
Sections 6 and 7, relate to representation for settlement
agreements. Section 6 amends AS 13.06.120. It is the provision
that is used for giving notice in probates and estate matters.
It removes the reference to judicially supervised settlements in
any non-judicial proceedings. This was done to clarify what
notice proceedings this applies to. Section 7 adds a new
subsection (b) to provide definitions. Paragraph (1) defines
"order" to mean a judicial order or nonjudicial order. Paragraph
(2) adds to the definition of "proceeding" to include
nonjudicial proceedings, and the settlement of accounts under
any procedure authorized under the probate code. This was done
to ensure that all nonjudicial proceedings are covered under the
notice provision.
Section 8 relates to the duties of trustees and co-trustees.
This clarifies current practice, which is that duties can be
granted to different trustees to oversee distributions of a
trust and to manage the investments of a trust.
2:40:56 PM
SENATOR WIELECHOWSKI referenced page 8, lines 3-4. He asked if
this completely exonerates excluded trustees from any obligation
to review, inquire, investigate, or make recommendations.
MS. CHAPMAN said that's correct, and that is consistent with
current statute. A co-trustee that has been delegated one power
is not responsible for the actions of another co-trustee because
they have no authority.
SENATOR WIELECHOWSKI asked if an excluded trustee would have any
responsibilities.
MS. CHAPMAN replied that they have the responsibilities that
were delegated to them. They would not be exonerated for any
action that falls within their powers.
SENATOR WIELECHOWSKI asked if a co-trustee would be excluded
from any obligation if he/she knew of fraud that was occurring.
MS. CHAPMAN offered her belief that the co-trustee would be held
liable because not disclosing the fraud would be a breach of
their overall fiduciary duty to the beneficiaries.
SENATOR WIELECHOWSKI observed that the language is extremely
broad and appears to completely exonerate an excluded trustee.
CHAIR COGHILL said his understanding is that it's directly
related to an authority that is assigned to the trustee.
MS. CHAPMAN agreed; it is intended to say that if one trustee
has the sole discretion to invest trust assets and one trustee
has the sole discretion to make distributions, the distributions
trustee does not have an obligation to review what the
investment trustee is doing.
CHAIR COGHILL asked Mr. Shaftel if he had anything to add.
2:43:56 PM
DAVID SHAFTEL, Attorney, Anchorage, Alaska, agreed with Ms.
Chapman's analysis. These types of statutes have been enacted in
a variety of states and are designed to protect one trustee from
another trustee's negligence, not fraud.
MS. CHAPMAN continued the sectional analysis.
Sections 9 through 11 relate to decanting, which is the ability
of a trustee to make changes to the terms of a trust that are in
the best interests of the beneficiary. Alaska was the second
state in the country to adopt this type of provision, but the
statute lacks guidance to trustees on how to use this power.
These changes are based on the revisions to the New York
statute, which Alaska modeled initially. The purpose of the
decanting statute is to allow a trustee to modify a trust to
correct errors and to adjust to changed circumstances and laws.
A trustee can make modifications based on the authority he/she
has and in the best interest of the beneficiary. For example, a
trustee with unlimited authority to make distributions could put
the funds into a new trust and continue the terms of the trust.
This is useful for minors or individuals who have special needs.
A trustee who has a limited power to distribute also has limited
authority to make changes. A beneficiary may object to the
exercise for a certain period of time. Restrictions also exist
to protect mandatory distribution rights, tax benefits, and to
prohibit the trustee from increasing their compensation or
decreasing their liability.
Section 14 relates to the appointment of individuals who will
help oversee a trust. Current statute allows the appointment of
a trust protector and requires that person to be a disinterested
non-family member. Appointing a disinterested third party is no
longer consistent with trust practices and that provision was
removed. Allowing family members to be appointed further
protects the beneficiary.
Section 15 adds a new provision regarding trust advisors. If the
terms of a trust designate the trustee to follow the direction
of a non-trustee advisor, the advisor may be held financially
liable to the beneficiary for the actions the advisor directs
the trustee to take. This change further protects the
beneficiary as well as the directed trustee.
Sections 33 through 35 amend the Uniform Transfers to Minors
Act. The Act allows the transfer of assets to an account for the
benefit of a minor. The account custodian may make distributions
for the benefit of the minor. Under the current statutes, the
custodianship ends when the minor reaches age 18 and the minor
is entitled to the assets. The amendment provides an opportunity
for the custodian to extend the time in which the custodianship
account will stay in place. The minor must be given notice of
the extension and they have the right to object. If the minor
does not object, the custodianship will continue and be managed
for their sole benefit.
SENATOR WIELECHOWSKI asked if the minor must be notified six
months before their 18th birthday.
MS. CHAPMAN agreed it is a six month notice period.
Section 36 relates to the adoption of the Disposition of Human
Remains Act. The purpose is to allow decedents to leave legally
binding directions regarding the disposition of their remains,
and to designate an agent to see that their wishes are followed.
If a person has not provided directions, then a priority list is
provided of the persons who may control the disposition of the
decedent's remains. A statutory form is provided so the
assistance of an attorney is not necessary.
2:55:59 PM
SENATOR WIELECHOWSKI asked if this would change the legislation
he introduced and that passed several years ago regarding
disposition of remains for military members.
MS. CHAPMAN said no. The disposition of the remains of members
of the organized militia under AS 26.05.262, the armed forces
under AS 26.10.065(a), and the United States Coast Guard under
AS 26.10.065(b) are exempt from the provisions in AS 13.75.
2:56:48 PM
MR. SHAFTEL continued the sectional analysis.
Sections 1 through 3 provide asset protection for inherited
interests in retirement plans. These amendments conform Alaska
law to the majority case rule that has been developed in
bankruptcy courts in a number of states. Arizona, Florida, and
Texas have enacted similar provisions.
Sections 4 and 5 clarify that a creditor's exclusive remedy
against an interest in a limited liability company is a charging
order against the interest, and other legal or equitable
remedies are not available. These protections apply for multiple
member entities and single member entities.
Sections 12 and 13 relate to placing an insurance policy in a
trust. When a settlor selects an insurance policy and names a
friend as a trustee, they generally don't want to burden the
friend with the obligation of monitoring the insurance company
for solvency and appropriate investment practices. This
amendment insulates the trustee from liability associated with
those insurance policies.
Sections 16 through 32 contain amendments to the 2003 Uniform
Principal and Income Act that reflect the final regulations that
the Internal Revenue Service issued regarding unitrusts. A
trustee is allowed to choose a unitrust rate of three to five
percent rather than be limited to the four percent amount in
current law. There is also an explicit definition of "income"
for a trust drafted as a unitrust. It provides for the ordering
of distributions among types of income and principle. A
smoothing period of up to five years is allowed to determine
what assets will be used when applying the unitrust percentage.
3:02:01 PM
SENATOR WIELECHOWSKI asked for a definition of unitrust.
MR. SHAFTEL explained that a unitrust is a trust that
distributes a fixed percentage of the value of the trust assets
on an annual or more frequent basis.
Section 37 amends the insurable interest statute for life
insurance contracts. This clarifies that a trustee of a life
insurance trust who is holding the policy for the benefit of
members of the person who set up the trust is an insurable
interest.
Section 38 is a companion provision to the LLC provision
discussed in Sections 4 and 5.
SENATOR WIELECHOWSKI inquired if employers in Alaska are
prohibited from buying insurance policies on their employees and
naming themselves as beneficiaries.
MR. SHAFTEL said his understanding is that Alaska law does not
allow that.
Section 39 eliminates deadwood provisions.
Section 40 shortens the statute of limitation on creditor claims
from four years to two years. This is consistent with a
nationwide trend.
SENATOR WIELECHOWSKI questioned the public policy rationale for
limiting the statute of limitations.
MR. SHAFTEL said it's a policy call, but it's consistent with
what appears to be the modern trend.
CHAIR COGHILL asked if the four year limitation had been
challenged.
MR. SHAFTEL said no, although actions have been brought for
fraudulent transfers.
SENATOR WIELECHOWSKI asked if he would have six months to file a
cause of action or claim for relief if he discovered a
fraudulent transfer three years after it occurred.
MR. SHAFTEL agreed.
SENATOR WIELECHOWSKI asked if a judge or a jury would make the
decision that the person could have reasonably known.
MR. SHAFTEL explained that questions of fact are jury decisions,
otherwise it's a judge decision.
Section 41 codifies the common law protection that a creditor of
the beneficiary cannot compel distributions from the trust. This
section also allows the transfer of an IRS interest to a trust.
SENATOR WIELECHOWSKI asked if this new section of law was Sec.
34.40.118 on page 39, lines 21-30.
MR. SHAFTEL agreed.
SENATOR WIELECHOWSKI observed that this provision essentially
allows people to skirt the inheritance tax.
MR. SHAFTEL disagreed. He pointed out that the law now allows an
individual to transfer up to $5 million to a trust, and
transferring the IRA interest would use up a portion of that
exempt amount, depending on the value of the IRA. Current law
doesn't affirmatively allow an individual to transfer an IRA
interest to a trust and estate planners have been cautious and
haven't done it. This isn't a matter of federal law, and this
just clarifies that there is the option in state law.
SENATOR WIELECHOWSKI asked if a 20 year old beneficiary would
incur tax consequences if he/she took a distribution from the
IRA that was put in the trust.
MR. SHAFTEL stated that this does not change the income tax
consequences with respect to that IRA. The advantage of placing
an IRA into a grantor trust is that the growth of the asset
would not be subject to estate tax. This is already allowed with
other assets.
3:21:44 PM
Sections 42 through 46 amend Alaska's the optional community
property provision that was enacted in 1998. This provision
provides an attractive income tax benefit when the first spouse
dies, because there's an adjustment to the fair market value of
the basis of the assets of both halves of the estate. The
amendment clarifies that a community property trust is one way
to opt into Alaska's community property system. It eliminates
confusing language about statute of limitations. It clarifies
that property that spouses agree is community property is owned
as such regardless of the way that it is titled. It also enacts
remedies for improper transfers and limitation periods within
which those remedies must be pursued.
Sections 47 through 50 are technical provisions regarding
repealed sections, indirect rule change, applicability and the
requirement for two-thirds majority vote of each house.
3:25:14 PM
SENATOR WIELECHOWSKI expressed appreciation for the time spent
on the explanation.
CHAIR COGHILL stated he would hold SB 65 in committee and take
action at the next meeting.
3:25:58 PM
There being no further business to come before the committee,
Chair Coghill adjourned the Senate Judiciary Standing Committee
meeting at 3:25 p.m.
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