Legislature(2003 - 2004)
03/11/2004 01:30 PM Senate L&C
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
SENATE LABOR AND COMMERCE STANDING COMMITTEE
March 11, 2004
1:32 p.m.
TAPE(S) 04-22, 23
MEMBERS PRESENT
Senator Con Bunde, Chair
Senator Ralph Seekins, Vice Chair
Senator Gary Stevens
Senator Bettye Davis
Senator Hollis French
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
CS FOR HOUSE BILL NO. 409(FSH)
"An Act relating to the maximum length of salmon seine vessels;
and providing for an effective date."
BILL POSTPONED
SENATE BILL NO. 319
"An Act relating to claims for personal injury or wrongful death
against health care providers; and providing for an effective
date."
MOVED SB 319 OUT OF COMMITTEE
SENATE BILL NO. 337
"An Act relating to the powers of the Alaska Energy Authority to
make grants and loans and enter into contracts; relating to the
bulk fuel revolving loan fund; relating to the Alaska Energy
Authority's liability for the provision of technical assistance
to rural utilities; relating to the Alaska Energy Authority's
investment of the power development fund; repealing the
electrical service extension fund; and providing for an
effective date."
HEARD AND HELD
SENATE BILL NO. 344
"An Act relating to the Uniform Probate Code and trusts,
including pleadings, orders, nonprobate assets, estates of
decedents, minors, protected persons, incapacitated persons,
guardians, conservators, trustees, foreign trusts, principal and
income, and transfer restrictions; relating to corporate voting
trusts; and providing for an effective date."
MOVED SB 344 OUT OF COMMITTEE
PREVIOUS COMMITTEE ACTION
BILL: SB 319
SHORT TITLE: CLAIMS AGAINST HEALTH CARE PROVIDERS
SPONSOR(s): SENATOR(s) SEEKINS
02/11/04 (S) READ THE FIRST TIME - REFERRALS
02/11/04 (S) L&C, JUD
03/02/04 (S) L&C AT 1:30 PM BELTZ 211
03/02/04 (S) Heard & Held
03/02/04 (S) MINUTE(L&C)
03/11/04 (S) L&C AT 1:30 PM BELTZ 211
BILL: SB 337
SHORT TITLE: ENERGY PROGRAMS & FUNDS
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
02/16/04 (S) READ THE FIRST TIME - REFERRALS
02/16/04 (S) L&C, FIN
03/11/04 (S) L&C AT 1:30 PM BELTZ 211
BILL: SB 344
SHORT TITLE: TRUSTS/ESTATES/PROPERTY TRANSFERS
SPONSOR(s): SENATOR(s) SEEKINS
02/16/04 (S) READ THE FIRST TIME - REFERRALS
02/16/04 (S) L&C, JUD
03/11/04 (S) L&C AT 1:30 PM BELTZ 211
WITNESS REGISTER
Mr. Don Roberts, Jr.
Kodiak AK
POSITION STATEMENT: Opposes SB 319.
Ms. Meg Simonian
Anchorage AK
POSITION STATEMENT: Opposes SB 319.
Mr. Mike Hogan, Executive Director
Alaska Physicians and Surgeons
Anchorage AK
POSITION STATEMENT: Supports SB 319.
Ms. Cindy Lentine
Anchorage AK
POSITION STATEMENT: Opposes SB 319.
Ms. Brenda Arney
Wasilla AK
POSITION STATEMENT: Opposes SB 319.
Ms. Denise Morris, President and CEO
Alaska Native Justice Center
Anchorage AK
POSITION STATEMENT: Opposes SB 319.
Mr. William Cook, Atty.
Eagle River AK
POSITION STATEMENT: Opposes SB 319.
Mr. Les Syren, Vice Chair
Republican Party, District 31
Anchorage AK
POSITION STATEMENT: Opposes SB 319.
Mr. Paul Dillon
Dillon and Findley
350 N. Franklin
Juneau AK 99801
POSITION STATEMENT: Opposes SB 319.
Ms. Becky Gay, Project Manager
Alaska Energy Authority (AEA)
Alaska Industrial Development and Export Authority (AIDEA)
Department of Community & Economic Development
PO Box 110800
Juneau, AK 99811-0800
POSITION STATEMENT: Supported SB 337.
Mr. Jim McMillan, Deputy Director
Credit and Business Development
Alaska Industrial Development and Export Authority
Department of Community & Economic Development
PO Box 110800
Juneau, AK 99811-0800
POSITION STATEMENT: Supported SB 337.
Mr. Brian Hove
Staff to Senator Ralph Seekins
Alaska State Capitol
Juneau, AK 99801-1182
POSITION STATEMENT: Commented on SB 344 for the sponsor.
Ms. Beth Chapman, Atty.
Faulkner Banfield
One Sealaska Plaza, Suite 202
Juneau AK 99801
POSITION STATEMENT: Supports SB 344.
Mr. Steve Greer, Atty.
No address provided
POSITION STATEMENT: Supports SB 344.
Mr. Doug Blattmachr, President
Alaska Trust Company
POSITION STATEMENT: Supports SB 344.
ACTION NARRATIVE
TAPE 04-22, SIDE A
SB 319-CLAIMS AGAINST HEALTH CARE PROVIDERS
CHAIR CON BUNDE called the Senate Labor and Commerce Standing
Committee meeting to order at 1:32 p.m. Present were Senators
Gary Stevens, Bettye Davis, Ralph Seekins, Hollis French and
Chair Con Bunde. The first order of business to come before the
committee was SB 319.
MR. DON ROBERTS, Kodiak resident, said that SB 319 should not
have seen the light of day. He proclaimed that the Alaska state
constitution says all government originates with the people and
is founded upon their will, only, and is instituted solely for
the good of the people as a whole. "I assure you that neither
the Providence Health Systems nor the State Medical Association
speak for me or the people as a whole." He was concerned that SB
319 deprived people of due process.
MS. MEG SIMONIAN, Anchorage attorney, said she wanted to discuss
section 4 of SB 319 that amends AS 09.55.556. Subsection (c)
overrules two Supreme Court cases that set out reasonable
patient standards, which say basically that a doctor has to
explain everything to a patient that will allow them to make an
informed decision regarding treatment and procedures. This bill
would restrict that information to what the medical experts who
testified in the cases decided a reasonable patient should know.
The American Medical Association's code of ethics, section 808
adopts the reasonable person standard, not the standard that is
included in this bill.
You would be removing Alaska from a majority of states
that have set standards that the American Medical
Association says are appropriate in these cases and
putting it back many years....
MR. MIKE HOGAN, Executive Director, Alaska Physicians and
Surgeons, supported SB 319.
Three out of four doctors actually admit that this
liability crisis has changed the way they practice
medicine. HHS estimates it adds between 5 to 9 percent
to the overall healthcare costs in this country.
The question, do non-economic damage caps really help with
patient access to physicians, is addressed in the legislation.
An HHS study found that states with non-economic damage caps had
a 12 percent increase in the number of physicians per capita
versus states without the caps. Premiums in states with caps are
found to be 17 percent lower than in states without caps.
California adopted non-economic damage caps and from 1975 to
2001 its premium rates increased by 182 percent. Nationally, in
that same time period, rates went up 569 percent. The few
remaining insurance companies have been told that during that
same time period rates for physicians have gone up 1,593
percent. Testimony has indicated that Alaska's supply of
physicians is already at risk and any increase in premium costs
could be devastating to medical care in Alaska.
MS. CINDY LENTINE, Anchorage resident, said she used to be a
beautiful vibrant woman, but now she has no hair, no breasts,
her face is round from steroids and her body is tattooed from
radiation treatments. She will probably not live long enough to
see her grandchildren.
It is all because of negligence on the part of my
physician. Let me tell you why this bill is so
dangerous. By catering to the insurance companies and
the doctors, you're going to only encourage a
substandard level of professional [indisc.] Alaska.
Convincing evidence from other states shows that lowering non-
economic caps did not lower the insurance premiums for doctors.
Legitimate malpractice cases would not be brought forward
because winning will leave the patient clients worse off than
losing.
It renders medical malpractice cases almost impossible
to economically pursue. This is a scary piece of
legislation, because it allows insurance companies to
dictate jury awards. Yes, something has to be done
about medical malpractice insurance high rates for
doctors, but something also has to be in place for the
victims. This bill is not a vehicle to address these
issues....
MS. BRENDA ARNEY, Wasilla resident, related how in the summer of
2003 her husband, Bob, was diagnosed with a tumor on his lung.
He had surgery in Anchorage and his chances for recovery were
quite good. Pathologist reports showed there was no threat of
cancer and his doctor told him he could start exercising the
next day on a stationery bicycle. One night staff turned down
his monitors and left for a coffee break and during that time
Bob, while on heavy pain medication, disconnected his tubes and
catheter and walked out of the hospital making it to a trailer
two blocks away before he needed help. Three days later he died.
His death was caused by negligence of the hospital and
healthcare providers. The hospital said they were
sorry and that they would make changes in some
policies and they said they would erase some of the
hospital bills, but they did not bring Bob back. I
would like a jury to know these facts and judge my
loss, not the Legislature, not the hospital and his
doctors and not an insurance company.
Because Bob was retired, his economic damage loss in a
medical malpractice lawsuit would be quite small. My
pain and suffering since my loss of Bob really cannot
be valued by anyone but myself. Bob's agony before his
death was horrendous. I trust the judgment of a jury
of my and Bob's peers more than the Legislature, the
insurance companies and doctors valuing his life at
$250,000. Bob was my best friend, my soul mate and he
was priceless to me....
MS. DENISE MORRIS, President and CEO, Alaska Native Justice
Center, said she is concerned that SB 319 would apply in federal
tort claims act cases as well as state medical malpractice
cases. It will apply in cases involving federal healthcare
providers. The IHS facility medical providers do not have
medical malpractice insurance per se and are covered under the
federal tort claims act. This means that a private attorney
representing a plaintiff is rendering a defense against U.S.
attorneys.
If this passes, healthcare providers in the United
States will essentially be immune from cases where
malpractice seriously harmed the retired or elderly
Alaskans living in a rural or subsistence lifestyle,
mothers who do not work outside the home and children
who do not have any earned income. If someone from one
of these groups is seriously injured by malpractice,
their damages will primarily be non-economic. If non-
economic damages are capped at $250,000, no one will
be able to afford to bring these cases and, therefore,
they will not be heard and no remedy will be available
to these individuals that are injured.
Many citizens do not realize how difficult and
expensive it is currently to bring a malpractice claim
against a healthcare provider for negligence or
recklessness that causes harm. Many citizens do not
realize that we in Alaska already have non-economic
damages, which were capped by the Legislature in 1997.
In order for an Alaskan to bring a malpractice claim
against a healthcare professional, he or she must find
a medical expert working the same field as the
healthcare provider to prove that the standard of care
was breached. Sometimes cases require several experts.
It is practically impossible to find healthcare
providers in Alaska who are willing to do medical
malpractice cases. Therefore, experts are almost
always hired from outside the State of Alaska and are
extremely expensive. As you can imagine, it costs tens
of thousands of dollars in costs, alone, to
investigate and pursue a case of malpractice. It can
take in excess of $200,000 to actually go to the final
[indisc.].
Secondly, these cases rarely settle before there is a
tremendous amount of time, effort, work and expense
that is incurred. I am really concerned that if SB 319
is passed, it will have a tremendously adverse effect
on Alaska Natives who live a rural subsistence
lifestyle, for fishermen in the Bristol Bay region...
in the type of industry where a lot of accidents do
occur.
MR. WILLIAM COOK said he is an attorney in Eagle River who has
had several professional malpractice cases, but has not had a
great deal of medical negligence experience. He related how
young people in his congregation volunteer their time teaching
children and they are totally innocent of what is going on. It
would also adversely affect retirees, young stay-at-home
mothers, home-schoolers and Natives.
MR. LES SYREN, Vice Chair, District 31, Republican Party, said
he has a lot of healthcare providers in his family. He is also a
plaintiff's attorney, but as a Republican, he has several
problems with this bill.
First, it seems like we're institutionalizing
prejudgment of a case.... The other thing that offends
me as a Republican is this idea of personal
responsibility.... If we're giving special treatment
to this one group of people, not for any reason other
than they won't be able to get insurance supposedly or
their assets might be at risk, something like that,
that's not right. That just offends my sense of
personal responsibility....
He related several cases involving malpractice - one in which a
sponge was left in a woman's stomach and another in which a
woman had a fibroid removed from her uterus that unbeknownst to
her or her doctor had a viable fetus in it. "Let's not put the
burden on the innocent victims."
MR. PAUL DILLON, Dillon & Findley, had three areas of concern
regarding the effects of this bill on individuals across the
state.
I'm not going to discuss that. It's obvious that this
has profound effects on Alaskans in a very real
sense.... I'm going to cover whether or not the
removal of Continental and Northwest create a market
crisis for doctors, which has been alleged here. I'm
going to talk and address briefly a question of
premium crisis in the context of is there a premium
crisis and, thirdly... I'm going to address whether or
not there's any fixes out there that this committee or
this Legislature should consider as alternatives to
the saddling of Alaskans with the effect of a cap on
damages.
CHAIR BUNDE asked him to limit his testimony to five minutes.
MR. DILLON replied:
Whatever you want, sir.... I have handed out... a list
of all of the various malpractice that has occurred in
this state from 1990 forward as defined by the Alaska
Medical Board. This is a reporting that is required
for purposes of settlement or judgment.... In a
nutshell it defines medical malpractice to a large
degree in this state. We, therefore, know who the
victims of medical malpractice are and who the
practitioners are in the context of what is going on
in the real life situation of hospital medical care.
The one party that is not present is the insurance
companies, themselves. I have also provided you with
th
certain pages and excerpts from the 65 annual
report... I'd like to go over those with you
briefly....
He showed the committee that Norcal has 33.43 percent of the
market and Medical Insurance Exchange of California (MIEC) has
34.92 percent and the relative size of the companies. Between
the two of them, they control 70 percent of the market.
Northwest decided to pull out of the Alaska market after asking
for a 100 percent increase in their premiums, which was declined
by the Division of Insurance. He didn't know how many doctors
were affected by this, but he knows they then tried to get
insurance through MIEC or Norcal. If they didn't get insurance
through them, they had the option of going to a surplus line,
which is typically used by individuals who are unable to get
insurance through the normal market. A third way doctors can
seek insurance is the direct approach. They can call an
insurance company directly whether the company is in the state
or not, but this doesn't happen often.
As of 2002, 70 percent of the market was controlled by the
providers that are still here. He didn't know what percentage of
physicians and surgeons were affected by the removal of
Northwest and Norcal. He submitted to the committee that there
is not a crisis for doctors to get malpractice insurance. In
1978, the State of Alaska created an insurance company of its
own. Through the next 10 years it was tremendously successful
and kept premiums down for physicians and, because of its well-
run and effective liability section, it held claims and payouts
down. "So, we already have in the context of experience, a
successful way to resolve our problems."
MR. DILLON said that a number of his family members are doctors.
The last time doctors faced a premium problem where they felt
they were paying too much, they came to the Legislature, who
adopted a process that protected them, but also protected the
rest of Alaska. [END OF TAPE]
TAPE 04-22, SIDE B
2:20 p.m.
MR. DILLON said the purpose of insurance is to cover ourselves
in the event of a mistake. There has never been an attempt to
shift the burden of a mistake from doctors to victims.
That's what this cap is doing, especially in light of
the fact that you already have a cap. Why are we doing
this? We have a cap that exists in the context of what
we are dealing with every day in the courts as it
stands right now.
CHAIR BUNDE asked him to summarize.
MR. DILLON responded that would be hard, but rather than
summarize he went to the question of the review process for
premium rates. The Division of Insurance reviews the premiums
that are charged to physicians and judges them on three
standards - that the rate is not excessive, that it is not
inadequate (too low) and that it doesn't unfairly discriminate.
This means that the premium rates for all companies are going to
be between a range. The more effective and efficient companies
are going to be on the lower end and be able to lower premiums
somewhat. The less efficient are going to have to charge higher
premiums, but generally, all companies are within a marketable
range.
So, you have watchdogs in place. Just as Northwest
came in and sought a massive increase in their premium
base, which was denied, I submit to you that present-
day premiums, while high, and for all I know sitting
here - and I don't know - let me be very clear about
that - whether that constitutes such a percentage of
the doctors' cost as to make it an overwhelming burden
such that it's going to drive them from the state. I
submit, I don't think so, personally.... That cost
factor is certainly less than 5 percent on a national
average, but I don't think that premium cost is going
to drive doctors from the state, especially when we're
not HMOs. These guys can make as much money as they're
willing to go for in the context of what they do.
SENATOR HOLLIS FRENCH said a report about physicians practicing
in Alaska showed a trend over the past 17 years with respect to
our population. The number has gone up pretty steadily over that
time. He thought the appropriate year to look at would be 1997
when tort reform went into effect. Up until that time the number
was increasing, but after that time the number increased, as
well.
Another plaintiff's attorney pointed out to him that this bill
would put victims of car crashes in far better standing in the
eyes of the law than victims of negligence on a doctor's table.
The point made was:
Why would you handle those two people differently? Why
would you allow a person in a car crash to press all
their claims in court and cap the rights of person
damaged on an operating table. I think it is hard to
draw a principle distinction between those two.
SENATOR SEEKINS said he was sure the Labor and Commerce
Committee had looked as far into the matter as it could within
the purposes of the committee. He moved to pass SB 319 from
committee with individual recommendations and attached fiscal
note.
SENATORS HOLLIS FRENCH AND BETTYE DAVIS objected.
CHAIR BUNDE asked for a roll call vote. Senators Gary Stevens,
Ralph Seekins and Chair Con Bunde voted yea; Senators Bettye
Davis and Hollis French voted nay; and SB 319 moved out of
committee.
SB 337-ENERGY PROGRAMS & FUNDS
CHAIR CON BUNDE announced SB 337 to be up for consideration.
MS. BECKY GAY, Project Manager, Alaska Industrial Development
and Export Authority (AIDEA) and Alaska Energy Authority (AEA),
said Jim McMillan, Deputy Director of Credit and Business
Development, Mike Harper, Deputy Director of Rural Energy, and
Sarah Fisher-Grove, Financial Analyst, would help her answer
questions.
MS. GAY said that SB 337 amends the AEA program.
The first program affected is the Power Project Fund
loan program (PPF). The PPF program provides loans to
local utilities, local governments and independent
power producers for the development or upgrade of
power projects. SB 337 proposes to amend this program
by expanding the definition of power project to
include energy efficiency projects. Under the current
statutory definition of eligible project, AEA has
actually denied loan applications for worthwhile
projects such as lighting retrofits. In addition, SB
337 proposes to repeal the loan committee that
approves loans from this fund. AEA will instead
utilize the same credit approval process that AIDEA
has successfully utilized for its credit program,
which includes an appeals process to the board of
directors.
The next program affected is the Bulk Fuel Revolving
Loan Fund program. This program provides short-term
loans to assist small rural communities in purchasing
annual bulk fuel supplies. SB 337 authorizes loans
from this fund to other entities such as corporations,
cooperatives and joint ventures. The Department of Law
recently interpreted the current statutorily eligible
borrowers to be only communities and natural persons -
that is private individuals. This change will not
expand the definition of eligible borrower beyond the
long-standing interpretation and practice that already
includes other entities such as corporations.
SB 337 also provides that AEA may invest the Power
Development Fund and with the concurrence of the
Department of Revenue, the Power Development Fund has
been invested by AEA since 1993. This bill proposes to
affirm this long-standing arrangement by providing AEA
the statutory authority to invest the fund. Then AEA
would continue to remit all earnings of this fund to
the general fund.
The general [indisc.] of AEA are proposed to be
amended by clarifying that AEA has the authority to
manage various programs and projects by issuing grants
and interim contracts. By acting as an agent for rural
communities, AEA manages power projects, bulk fuel
projects and alternative energy projects. The
Legislature has authorized AEA to manage these
projects through the appropriate process by providing
AEA authority to receive and expend federal funds from
entities such as the Denali Commission and the U.S.
Department of Energy.
In addition, SB 337 specifies that AEA's statutory
mandate to provide technical assistance may not be
used on an independent basis for tort liability
against AEA. AEA will continue to be liable for
negligence if it fails to use reasonable care in
providing the technical assistance, however.
And last, this bill proposes to repeal the inactive
Electrical Service Extension Fund. That concludes my
comments.... I urge your favorable support and action
on this bill.
CHAIR BUNDE asked if there is an actual size designation for
small rural communities in the bulk fuel program.
MS. GAY replied that small rural communities have a population
of 2,000 or less.
CHAIR BUNDE asked if she knew of any small rural communities
that are excluded.
MR. JIM MCMILLAN, Deputy Director, Credit and Business
Development, AIDEA, said he didn't have that information at his
fingertips, but he would get it for the committee.
CHAIR BUNDE said that Bethel comes to mind.
MR. MCMILLAN agreed with Bethel, but didn't want to venture a
guess on others.
SENATOR HOLLIS FRENCH asked for clarification of the provision
that repeals the committee that approves loans from the fund.
MR. MCMILLAN explained:
When we assumed the rural energy programs from the
Department of Community and Regional Affairs, Division
of Energy, in 1999, the loan committee was part of the
statutory process at that time - that the Division of
Energy used for approval of power project fund loans.
We [AEA] elected at that time not to change the
process and go with the established statutory loan
committee. We have been doing that since 1999, but it
was always our intent to try and meld the rural energy
programs and the process for approval into the long-
standing process that we have used on the other side
with Alaska Industrial Development and Export
Authority.
In the internal loan committee, we have the expertise
on staff and an appeal process to the board of
directors. So, what this is doing is repealing the
statutory loan committee, which is comprised of the
director of OMB, the executive director of AEA and
three public members from various judicial districts
appointed by the governor - in moving it to the
internal process similar to AIDEA.
CHAIR BUNDE asked if the loan committee's duties are being moved
to another already-existing credit committee, why is there no
change in the fiscal note. He thought savings would be seen at
least with per diem.
MR. MCMILLAN replied that is correct, but for the past year or
two, all of the meetings have been conducted telephonically.
There have been no requests for payment of per diem by the
committee members. The meetings last about an hour or less.
CHAIR BUNDE said he was glad he gave Mr. McMillan an opportunity
to brag about the committee's efficiency and said that SB 337
would be held for a later meeting.
SB 344-TRUSTS/ESTATES/PROPERTY TRANSFERS
CHAIR CON BUNDE announced SB 344 to be up for consideration.
MR. BRIAN HOVE, staff to Senator Ralph Seekins, sponsor,
explained the bill as follows:
A vital characteristic of any highly developed
economy is the ease with which financial resources
flow from one market to another. The magnet-like
attraction between money and the market that offers
the most advantageous terms at a particular moment in
time is, perhaps, best demonstrated within the
financial services industry itself.
Over the years, the Alaskan banking industry has
attracted funds to our state as a result of a
particular niche we have successfully developed in an
obscure corner of the industry known as trust and
estate services. Much of this success can be
attributed to the foresight demonstrated by the Alaska
State Legislature.
Since 1997, the Legislature has passed numerous bills
effectively making Alaska a premier jurisdiction for
this financial specialty. Just last year, SB 87
adopted a more recent version of the Uniform Principal
and Income Act. HB 212 updated other portions of
Alaska's trust laws. Both were signed into law last
summer.
While SB 344 may not be as far reaching, it
accomplishes much the same purpose. It does this by
making a host of small technical revisions to current
statutes. It updates the provisions relating to
virtual representation, it clarifies when a trustee
can be relieved of liability and it adds provisions,
which other jurisdictions have already adopted.
Keeping our trust statutes current has had a direct
positive impact on our state's economy. Over the
years, these periodic revisions have helped to bring
hundreds of millions of dollars of trust assets into
the state and added tens of millions of dollars to
local bank deposits. Furthermore, it has increased
business activity for attorneys, accountants, life
insurance agents and brokerage firms. This, in turn,
creates jobs.
Necessity, ingenuity and routine advances in
technology collaborate on a daily basis to reinvent
the world of financial products and services. To date,
Alaska has successfully staked out a place in this
world through our contemporary set of trust and estate
laws. SB 344 seeks to preserve our position in what
amounts to a highly fluid marketplace unrestricted by
geographic boundaries. It seems reasonable to keep the
money flowing in this direction.
CHAIR BUNDE said he understands that current trust laws in
Alaska generate some income for the state and asked if he could
speculate how fine-tuning the trust would advance the earnings
for the state.
MR. HOVE replied that would be difficult, but if we don't keep
up with the Joneses in this instance, we will be going backwards
and the money the state has attracted so far will start to go in
the other direction.
MS. BETH CHAPMAN, Attorney, Faulkner & Banfield, said she has
practiced in the estate and trust area for the last 16 years.
She supported SB 344.
I believe SB 344 is necessary to ensure that Alaska
remains the standard bearer for trust and estate law.
Since 1997, when the Legislature passed the first
trust act, several other states have tried to take the
business from Alaska and keep that business, in
particular, Delaware. Many of these changes are
designed to ensure that Alaska is the state where
folks will want to put their trust assets, both
residents and non-residents.
Several of the ways that the law is improved is SB 344
makes technical amendments to the recently enacted
Uniform Principal and Income Act. It also expands the
scope of a doctrine called virtual representation.
What this really does is ensures that we are able to
give notice to classes of beneficiaries in an
efficient manner, access the courts in an efficient
and cost effective manner, to ensure that the trust
laws are fulfilled in that the testator's trust is, in
fact, upheld in the courts.
Also and, probably what I consider to be one of the
most important aspects of the bill, is section 4
dealing with the limitation on proceedings against
trustees. Under current law, we do not have a statute
of limitations for causes of actions against a trustee
until a final account is rendered on the trust. A
final account would normally not be rendered until the
trust relationship has been terminated. Alaska now has
trusts that can last in perpetuity. Therefore, we
could have a very long time before any proceeding
could be brought. An example would be where we have a
trust that's been in existence for 15 years. Yearly
reports have been given to the beneficiaries, but 14
years later, a beneficiary decides that something that
occurred in year one is now a problem. They can now
seek and bring a cause of action in the court and go
back that many years. They are only barred after a
final account. This would change that law so that a
beneficiary is required to bring a cause of action
within a period of time after they have received
notice that would give them enough information to
recognize that there was a cause of action and, also,
that the trustee is required to notify the beneficiary
of that time limit. So, it's very protective of the
beneficiaries, as well. It's not just a bar, but it's
also notification provision.
CHAIR BUNDE asked if it would be an oversimplification to say
that under the current system the statute of limitations would
run until the trust is cashed out and in some cases that might
not be in any foreseeable future.
MS. CHAPMAN replied that would not be an oversimplification and
could happen if the trustee isn't changed prior to the time the
trust is terminated.
We believe that can lead to costly and complex
litigation that should be avoided if we had a statute
of limitations that notified beneficiaries of their
rights.
The other part of the bill that's important is that it
expands the spendthrift protection for other types of
trust that are commonly used. Last year, the
Legislature adopted a trust bill that did expand the
spendthrift protection to certain types of charitable
trusts. This would expand it to include other types of
trusts that are recognized under federal income tax
law, most notably a qualified personal residence trust
and what is known as a grantor retained annuity trust.
CHAIR BUNDE asked her to define a spendthrift provision.
MS. CHAPMAN explained:
A spendthrift provision is a provision in a trust that
limits the creditor's ability to access the trust
assets until they are distributed to the beneficiary
or to the grantor. Alaska has a spendthrift provision
that allows an individual to set up a trust with his
or her own assets and retain certain discretionary
rights to those funds, but until the funds are
actually distributed by an independent trustee, those
funds cannot be attached by a creditor. A qualified
personal residence trust is generally used to transfer
a home from an older generation to a younger
generation and right now, by placing it into a trust,
it would have no spendthrift protection until we amend
the law that would allow the individuals to continue
to live there and until the trust is terminated and
those assets are distributed out, which does happen
generally after a short period of time, those assets
would be protected from creditors.
In essence, I believe the Alaska Legislature has shown
foresight in adopting the laws, has helped the Alaska
economy by bringing trust funds to the state and that
SB 344 is another bill that will continue the trend in
keeping Alaska at the forefront of states with trust
laws.
CHAIR BUNDE asked if she knew what revenue the current trust law
has brought to the state.
MS. CHAPMAN replied that she didn't know.
SENATOR HOLLIS FRENCH asked:
Regarding section (2) pleadings and the parties who
are bound by orders and notice regarding proceedings
involving trusts - as I look at this section, it
strikes me that you're broadening the scope of
proceedings that might bind others - that is they no
longer have to be formal proceedings. They don't have
to even be judicially supervised settlements; they
could be non-judicial proceedings and settlements and
is that, at first blush, what is happening in this
section?
MS. CHAPMAN replied, "Yes, it is."
SENATOR FRENCH asked her to flesh out the folks who could be
affected by a non-judicial settlement of a trust and start with
section (c) and go on through.
MS. CHAPMAN explained:
The individual starting at section (c) that would be
bound - and it's important to note that all the
individuals who we've bound can only be bound to the
extent that there is no conflict of interest - and we
are required by the prior section of the code to
inform the court - and in a non-judicial if we were
going to enforce a non-judicial settlement of the
individuals we are attempting to bind. So, in section
(c), a minor for example, can be bound by another
person so long as there is substantially identical
interest. Similarly, an incapacitated person or a
person whose identity or location is unknown or not
ascertainable.
SENATOR FRENCH asked what substantially identical interest boils
down to.
MS. CHAPMAN answered:
Somebody would have substantially identical interests,
so that whatever they would receive from the trust
would not be affected by what would happen to the
other person's interest. For example, somebody who has
an interest in the income, but not in the principal,
they would not necessarily have the substantially
identical interests. If we affect the principal, make
a distribution, we would be reducing how much is
available to pay the income. So, they are interests
that would not be affected by a ruling. So, the effect
would be the same to the interests. It doesn't
necessarily mean the same amount, but the same nature
of the interest. Probably the best example is moving
on to section (d) where we talk about class. It says
many times we will have a gift that will indicate it
will be to my spouse for his or her life and then to
my children after the death of the spouse and you may
have children who at the time the trust was
established are alive, you may have children who are
not yet born.
Number (d) indicates that if we serve obviously, the
people who are alive, that that does bind those after
born children. So, we don't have to go back in and
relitigate the issue. Similarly in (e), if we have an
interest that passes to the surviving spouse and to
persons who are heirs of the living person, that would
receive it in the future for the future interests,
that so long as we serve the living people, that will
bind those who are not yet in existence.
[Section](f) is where we're talking about a happening
of a future event. That's sort of the key to all of
these new additions - the (d) through (f). We're
talking about binding a class of individuals who will
receive it in the future. So, we may not even know who
all the members of our class are going to be whether
some people may have died, some people may have been
added to the class. So, in (e) what we're discussing
is if we have a class of individuals who are going to
receive it in the future, and then we have another
class after that, we have perpetual trusts, that will
say to my children, after the death of the last child,
to my grandchildren, after the death of the last
grandchild on and on and on in perpetuity. Once we
bind the first class, then it's going to bind all the
other classes along the way so that each time we have
a new class coming into existence we do not have to go
back to court or a non-judicial settlement to resolve
the issue.
Most of the issues where we're going to see this
statute used is issues involving interpretation. The
courts have the authority to require us to serve
anybody that the court feels should be served. So, at
any time, when we disclose to the court who we intend
to give notice to and what provision we're using of
this law to give substitute notice, the court could
say no, that's not acceptable; you need to go out and
serve. The court has the ultimate jurisdiction.
CHAIR BUNDE asked if you can put things in an Alaskan trust and
still have limited access to them.
MS. CHAPMAN replied that is correct.
CHAIR BUNDE asked if that had passed the muster of courts.
MS. CHAPMAN replied that the statute that was passed in 1997 has
not been looked at by a court, yet.
MR. STEVE GREER, Atty., said he has been involved in the group
that has worked on this legislation for years. "It is a very
good piece of legislation." He urged its passage.
MR. BLATTMACHR, President, Alaska Trust, supported SB 344. "It
will be beneficial for Alaska residents and for businesses and
for the State of Alaska."
TAPE 04-23, SIDE A
2:58
SENATOR BETTYE DAVIS moved to pass SB 344 from committee with
individual recommendations.
CHAIR BUNDE asked for a roll call vote. Senators Hollis French,
Ralph Seekins, Bettye Davis and Chair Con Bunde voted yea; and
SB 344 moved from committee. There being no further business to
come before the committee, he adjourned the meeting at 3:00 p.m.
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