HB 208-TRUSTS; COMM PROP TRUSTS; POWERS OF APPT  9:29:41 AM CHAIR COGHILL announced the consideration of HB 208 and stated that the purpose today was to take public testimony. He asked the sponsor if she wanted to provide opening comments. 9:30:31 AM REPRESENTATIVE DELENA JOHNSON, Alaska State Legislature, Juneau, Alaska, sponsor of HB 208, thanked the committee for hearing the bill. She said the more questions she answers, the more convinced she becomes that this is a good bill. It brings a significant amount of money into the state without costs. She directed attention to the handout that has good explanations of decanting and fiduciary responsibility. 9:32:28 AM CHAIR COGHILL opened public testimony on HB 208. 9:33:00 AM DAVE G. SHAFTEL, representing self, Shaftel Law Offices PC, Anchorage, Alaska, said he has been practicing in the area of trusts and estate law since the late 1970s. He advised that since the bill was heard last, members of the Estate Planning Section of the Alaska Bar Association have said either they oppose the proposed decanting provisions of HB 208 or they would like the Estate Planning Section to thoroughly review them before any changes are made. Another major concern articulated in the responses is that the bill grants the trustee very broad powers to change the dispositive intent after the person who made the trust dies or becomes incapacitated. He provided examples to demonstrate that this could lead to abuse. MR. SHAFTEL said HB 208 also raises some very basic procedural fairness concerns. For example, a trustee who decides to modify where the property is going only has to give notice to one beneficiary. Furthermore, the bill says that the trustee only has a fiduciary duty to one beneficiary. That is totally inappropriate because trustees should have a fiduciary duty to all beneficiaries. 9:40:14 AM RICHARD HOMPESCH, attorney representing self, Fairbanks, Alaska, stated that he strongly disagrees with Mr. Shaftel's testimony. He pointed out that all beneficiaries of a trust are entitled to an accounting under AS 13.36.080 and any decanting should be included in that accounting. Since 2013, the law has required notice of decanting to the settlor if living, the persons who have the power to remove the trustee who is exercising the decanting power, and a qualified beneficiary. HB 208 does not substantively change that rule. It does change the phrase "a qualified beneficiary" to "at least one qualified beneficiary." MR. HOMPESCH said he believes that a trustee who wants to abuse the settlor's intent has ample opportunity to do so by making outright distributions, perhaps contrary to the settlor's intent, instead of using decanting. Notice is not required for an outright distribution and if other beneficiaries review the accounting and think it was outside the standard, those resources are gone and there may not be much recourse other than to sue the trustee. By contrast, if a beneficiary later objects to a decanting, the money is still available; they can go to court and ask that the monies be returned to the original trust. Thus, the objections to HB 208 are unfounded, he said. 9:45:33 AM MATT BLATTMACHR, Vice President, Peak Trust Company, Anchorage, Alaska, stated that Peak Trust Company supports HB 208 but not the proposed amendments. They may have unintended and negative consequences. The bill has been four years in the making due to its complexity and the desire to get the statute just right. Peak Trust Company believes that the concerns of those who oppose HB 208 have been considered and properly addressed under other Alaska statutes or federal law, even if not expressly stated in the bill. Further, Alaska statutes require a trustee to discover and make effective the dispositive intent of a grantor whether under a will or trust. That cannot be changed. Additionally, a trustee has a duty to all beneficiaries. This is an unchangeable right and the language in HB 208 cannot be interpreted to say otherwise. He urged the committee to pass HB 208. 9:48:07 AM BHREE ROUMAGOUX, Attorney, Shaftel Law Offices, Anchorage, Alaska, said she has worked in estate planning, is a trustee, and a beneficiary. She said the decanting statute needs to be updated and it would not be difficult to get to something that protects all parties and gives trustees the flexibility that's required due to changes in tax laws and changes in life situations. The statute should also allow people to do it in ways that are not as costly as going to court for modification of an irrevocable trust. She also opined that the fiduciary standard in the proposed AS 13.36.158(e) should be modified so it applies to all beneficiaries. The current language in that subsection should not be passed. 9:51:07 AM SUSAN BEHIKE FOLEY, President, University of Alaska Foundation, and Chief Development Officer, UA System, Anchorage, Alaska, related that before she moved to the university, she spent much of her professional career as a trust and estate planning attorney in Alaska. She stated that the University of Alaska is concerned about the effect HB 208 could have on donations Alaskans make to the university upon their deaths. Their donors are primarily average Alaskans who prepare documents for their estates believing that their wishes will be honored. Ensuring that will happen is the university's concern. Because planned gifts to the university are a vital source of revenue for the university, they have been actively working to improve HB 208. They have honed their recommendations to three suggested changes: • Clarify the trustee's fiduciary duties. • Protect gifts to charities like the UA Foundation, that are not claimed as deductions for tax purposes. • Require notice of decanting to charities to ensure organizations like the UA Foundation are not left out of the loop. Without these changes, the University of Alaska Foundation cannot support HB 208, she said. 9:54:04 AM BETH CHAPMAN, Attorney, Juneau, Alaska, stated that she has been a trust and estates attorney for 30 years and was intimately involved in drafting HB 208 and she supports the original version. It fulfills the settlor's intent and continues to provide the protections to beneficiaries in existing law. It will give trustees more flexibility to make changes to trusts instead of outright distributions. This ultimately protects beneficiaries. She opined that the proposed amendments, including those from the university, would not improve the bill. She pointed out that any charitable gift for which a charitable deduction has been taken cannot be changed going forward. 9:55:34 AM JAMIE DELMAN, Attorney, Shaftel Law Offices PC, Anchorage, Alaska, stated that he was strongly opposed to HB 208 and wanted to comment on some of the supporting testimony. Mr. Blattmachr and Ms. Chapman noted that intent is not jeopardized by this bill but Section 14 deletes the language that prevents a decanting if there is substantial evidence of a contrary intent of the settlor. Ms. Chapman also noted that charitable gifts for which a deduction has been claimed would be protected but many Alaskans make charitable gifts as remainder beneficiaries in their trust documents or they don't need a charitable deduction because they don't have over $11 million in assets. Mr. Hompesch also argued that beneficiaries can request an accounting. This is true if the beneficiary knows they are a beneficiary but that is not always the case. It is difficult to imagine how they could request an accounting from a trust they don't know anything about, he said. The argument that the assets are protected in a distribution in further trust is unfounded in the sense that a beneficiary could be completely cut out under HB 208 and know nothing about it until years later when much of the money may already have been spent. He reiterated that he strongly opposes HB 208. 9:58:57 AM ANNE HELZER, Attorney, Anchorage, Alaska, stated that she opposes HB 208 as currently drafted. She advised that over the last eight years she has assisted hundreds of Alaskans in the area of estate and trust planning and she finds it concerning that she only learned of this bill a month ago. She pointed out that abuse by fiduciaries is neither an unforeseeable event nor is it uncommon, especially among the elderly. She opined that the decanting of a trust should only happen in limited circumstances and for very good reasons. Flexibility may be a good thing but checks and balances are needed. Earlier testimony that disputes could be pursued in court underestimates the cost involved to a beneficiary to bring an action in court. It's a David and Goliath situation, she said and reiterated her opposition to HB 208 as currently drafted. 10:04:24 AM ALEX SLIVKA, Chair, University of Alaska Foundation, Anchorage, Alaska, said he wanted to echo the comments of Mr. Shaftel and Susan Foley. He advised that the University of Alaska benefits from a large number of planned gifts amounting to millions of dollars that benefit UA programs, students, and campuses across the state. In these times of tight state funding, this is a top priority for the Foundation, the Board of Regents, and the university leadership, he said. He expressed concern that the current draft of HB 208 may have unintended consequences. He urged the committee to adopt the changes Ms. Foley described to help safeguard the University of Alaska Foundation and a crucial source of funding. 10:05:48 AM VANCE SANDERS, Attorney, Juneau, Alaska, said he has practiced in Alaska since 1984 and a significant portion of his practice is representing disabled people. He noted that the statute Mr. Hompesch referenced that allows decanting has been very helpful in meeting the changing requirements for SSI benefits that many of his clients rely on. He stated strong support for HB 208 as written. 10:07:19 AM ABIGAIL O'CONNER, representing self, Anchorage Alaska, said she supports HB 208 without any of the proposed amendments. However, that does not mean she and other supporters wouldn't be willing to work with their colleagues on further amendments. It's that the amendments proposed so far have issues She opined that the notice requirement is not a change. The language in existing statute says notice is to be given to "a qualified beneficiary" and the bill clarifies that to say, "at least one qualified beneficiary." She opined that beneficiaries are entitled to notice and that it's reasonable for a beneficiary to specifically request notice if a trust is ever decanted. She pointed out that decanting is in current statute and there are existing concerns over abuse. These concerns should not stand in the way of enhancing the decanting statutes. The flexibility this bill proposes will be very helpful. If a trustee wants to frustrate the settlor's intent, they can do so by distributing all the assets outright to one beneficiary, by improperly managing the money, or by improperly investing. There are already remedies for these potential abuses of trust and there would be a remedy for this one two. She reiterated her strong support for HB 208. 10:10:17 AM PAUL KARLKAUFMAN Attorney, Shaftel Law Offices, Anchorage, Alaska, said he practices estate planning and charitable giving and he represents nonprofit organizations. He is also a member of the Anchorage Library Foundation Board and wanted to focus on the charitable implications of HB 208. He advised that the Alaska Chapter of Fundraising Professionals has asked for more time to consider the effect of HB 208 because they only learned about it last month. If there was a serious intention to ask for the input of stakeholders, they should have an opportunity to speak. MR. KARLKAUFMAN stated opposition to HB 208 and outlined its impact on Alaska charities. • Section 4 gives a trustee authority to change the charitable beneficiary despite contrary donor intent. • Section 14 deletes the provision in existing law that prohibits decanting where there is substantial evidence of the contrary intent of the donor. • A donor's intent is protected under Section 16 only if a charitable deduction applies. It does not protect an identified charity. Only the ultra-wealthy would be protected. Even if a charitable deduction is claimed, Section 16 does not prevent a trustee from changing the charitable beneficiary. • The lack of notice to all beneficiaries in Section 20 means an Alaska charity will almost certainly not receive notice if it has been removed as a beneficiary. Charities are often not aware they are a beneficiary until the trustee notifies them. MR. KARLKAUFMAN concluded that lack of notice, change in the fiduciary standard, removal of the requirement to honor the donor's intent, minimal protection of charitable deductions, and the retroactive application of HB 208 all place Alaska charities at risk. 10:13:59 AM MICHAEL CAVLALIERE, Attorney, Fairbanks, Alaska, said he supports the original draft of HB 208. The changes made to the decanting statute will allow flexibility and give trustees the ability to respond to changing circumstances in a beneficiary's life or changes in the tax laws. The decanting provision allows these changes to be made in a cost-effective manner. He said he understands the concerns voiced about abuse, but trustees have the duty to always act in the best interest of the beneficiaries and that is not being changed or eliminated. Also, there is already ample opportunity for abuse under current laws such as outright distributions to one beneficiary to the exclusion of the others. No notice is required in that circumstance He reiterated his support for HB 208. 10:15:53 AM CHAIR COGHILL closed public testimony on HB 208 and held the bill in committee. He noted that he would be looking for a pathway forward.