SB 163-POWERS OF APPOINTMENTS/TRUSTS/CREDITORS  CHAIR SEEKINS announced SB 163 to be up for consideration. SENATOR THERRIAULT motioned to adopt CSSB 163(JUD), version \I. There was no objection and it was so ordered. MR. BRAIN HOVE, staff to Senator Seekins, said this dovetails with SB 87. In 1997, legislation was passed making Alaska one of the best trust jurisdictions nationwide. This legislation made two significant changes to existing law. First, it provided that an individual could set up a trust and have the trust as long as the family wanted. This is known as a perpetual trust. Secondly, it provides that an individual could set up a trust where he or she could be a beneficiary and have the trust's assets protected from future creditors. This is known as a self-settled spendthrift trust. Over the last six years, the states of Delaware, Rhode Island and Nevada have not only adopted similar legislation, but also incorporated improvements to certain provisions. Idaho and South Dakota have also added features to their general trust laws that now make them comparatively advantageous. SB 163 places Alaska trust legislation back on an equal footing with these states. Additionally, SB 163 codifies a number of matters that have been accepted by Alaska trust practitioners, as being the common law of the state for which there has been no statutory counterpart. Overall, these changes are designed to keep Alaska as the premier trust jurisdiction, thereby, not only retaining financial resources in state, but also continuing to attract non-resident trust assets to Alaska. MR. JON BLATTMACHR said he is the one that originally suggested the legislation to allow the United States and Alaska in particular to capture business that was going to off-shore jurisdictions and to create trusts that last as long as the family wants. He emphasized how extraordinarily successful this legislation has been for the State of Alaska. SB 163 would help Alaska catch up and in certain cases, surpass similar legislation enacted in some other states. MR. DOUG BLATTMACHR, Alaska Trust Company, supported the statements his brother made adding that this helps fine-tune what they have already done and brings Alaska to the forefront of being a premier jurisdiction. The legislation that has passed has brought significant business to Alaska. They typically have $20 million to $30 million on deposit with local banking institutions. In 2001, over $700,000 additional life insurance premium tax dollars came to the state and they estimate about $500,000 came in this year from his institution alone. MR. STEVE GREER said this bill has been two years in the making and articulates what they believe the common law to be. It clarifies some of the ambiguity that the original legislation has and incorporates some Delaware provisions. MR. SHAFTEL said he also supports SB 163 and that this vehicle has been accepted and used widely by Alaska residents. MR. PETER BRAUTIGAM said this legislation that they have all worked on since 1997 has been beneficial to all of their clients in Alaska that do estate planning. MR. RICH HOMPESCH said he also supports SB 163 for all the reasons mentioned. MR. JOHN MAINE, Director, Division of Child Support Enforcement, said he was concerned about how they could enforce child support with regard to trusts. They hope this language does not hinder their ability to collect child support. SENATOR ELLIS asked if he didn't understand the bill well enough to know if it would hinder child support enforcement as it relates to trusts. MR. MAINE explained that revocable trusts are something they have had to learn to live with and they have dealt with them in three or four cases. He said they removed the word "primary" on page 3, line 12, and the division could probably work with language about showing intent to defraud child support. SENATOR THERRIAULT said that language attracted a lot of attention when the bill passed originally. MR. GREER explained that page 3, line 12 [indisc]. TAPE 03-22, SIDE A    SENATOR ELLIS asked if the trust protection is new. MR. GREER said the language didn't add anything. They just wanted to clarify that if there is intent to defraud a creditor, that transfer can be set aside. SENATOR ELLIS asked for a comparison in layman's terms of what a trust protector, a trustee advisor, and a trustee would be. He asked whether trust protectors are something new that they are adding to the statute. MR. DOUG BLATTMACHR replied yes, they are adding that to the statute, but it's something that is being used quite extensively. About 99 percent of their trusts use the trust protector concept. It's only there if the person setting up the trust wants to put in a trust protector and that is usually a trusted friend or advisor. They can remove the trustee if they don't think he is performing the job properly or for any number of other reasons without going to court. SENATOR FRENCH asked if these are called asset protection trusts. MR. BLATTMACHR replied that the first piece of legislation was done for two primary reasons. To allow trusts to last more than the rule against perpeties, which is about 80 years, because some people want to continue a trust for a longer period of time for tax and non-tax reasons. The main reason we wanted to provide for these, what's called self settled spendthrift trusts, is where you can be a beneficiary and not have the asset attached by future creditors. We wanted to encourage people to make lifetime transfers...Right now, under the federal tax code, everybody has a million dollars that if their estate, if they die with less than a million dollars, doesn't pay any tax. Well, you can use that during your lifetime. So, many times people will have come to planners and say, 'You know, when we die, our children have to pay a fairly significant estate tax. What can we do?' They may have $4 million and indicate that they live well below their means and they don't need all this money and they can transfer that to their children today and get all the appreciation out of the estate. So, if they transfer a million dollars, in 20 years at historical rates you're going to have probably close to $8 million additional in your estate to be taxed. If you kept it, your heir would pay about $4 million in tax. MR. BLATTMACHR said he wanted to encourage people to transfer money to their heirs, but they might transfer too much and actually need to have some money back. A beneficiary feels more comfortable making the transfer knowing that if he needs it, he can go back to the trustee. A lot of people who set up these trusts for legitimate reasons are coming back to the U.S. jurisdiction because they don't have to go off-shore to legitimately accomplish what they want to accomplish. SENATOR FRENCH asked if Alaska had ever adopted the FTA, Uniform Fraudulent Transfer Act. MR. GREER replied they have not adopted the act. SENATOR THERRIAULT said the trust protector is new to statute, but not new to the state. MR. DOUG BLATTMACHR said they have encouraged the use of a trust protector. "We think that if we can't keep the beneficiaries happy, we probably don't want the relationship anyway." SENATOR FRENCH asked if this bill adds any protection for creditors. MR. BLATTMACHR replied that it just clarifies some things - like what is an existing creditor and what isn't. MR. GREER replied yes there was an addition on page 5 that could be very helpful [indisc] SENATOR ELLIS asked how these services are marketed, especially to folks outside of Alaska. MR. DOUG BLATTMACHR replied that in the beginning it was a very hot topic in the estate planning community and they got a lot of press. Then there were about 15 seminars across the country sponsored by New York Life, a company that markets their services at the largest estate planning conference that is held each year. As time goes on, more and more professionals started talking about it. SENATOR THERRIAULT motioned to pass CSSB 163(JUD), version \I, from committee with individual recommendations. There was no objection and it was so ordered.