03/05/1998 01:40 PM House FIN

HOUSE BILL NO. 321                                                             
                                                                               
"An Act relating to trusts, to the prudent investor                            
rule, and to standards of care applicable to personal                          
representatives, conservators, and trustees; and                               
providing for an effective date."                                              
                                                                               
DAVID PREE, STAFF, REPRESENTATIVE JOE RYAN, stated that the                    
Uniform Prudent Investor Act would reverse common law rules                    
that restrict the investment powers of trustees.  The new                      
act would require a trustee to invest as a prudent investor                    
would, using reasonable care, skill and caution in light of                    
the objectives and risk tolerance of the individual trust.                     
                                                                               
Diversification of assets is an obligation.  Trustees can                      
delegate investment responsibilities to experts.  Within                       
the scope of these powers and duties, trustees can choose                      
to invest in any kind of asset that meets the objective of                     
the specific trust.                                                            
                                                                               
Co-Chair Therriault acknowledged that the bill would add                       
new verbiage as recommended by the Uniform Law Commission.                     
                                                                               
RICHARD THWAITES, PRIVATE ATTORNEY, ALASKA TRUST                               
CORPORATION, ANCHORAGE, testified in support of the                            
legislation.  The purpose of the Uniform Act was to bring                      
Alaska in line with the rest of the states.  Like the                          
Uniform Commercial Code, which made businesses able to deal                    
from one state to another, the bill would allow fiduciaries                    
in each of the states to rely on consistency in Alaska Law.                    
                                                                               
The Alaska Law currently, is not the Uniform Act.  The                         
Uniform Prudent Investor Act changes and unifies the                           
investment standard throughout the country by providing                        
more flexibility.  The new act would allow the fiduciary to                    
select the standard appropriate for the beneficiary.                           
                                                                               
(Tape Change HFC 98- 55, Side 1).                                              
                                                                               
Mr. Thwaites continued, the legislation would standardize                      
the language while at the same time providing the leeway                       
necessary to allow the trustee to customize the investment                     
plan for a particular person.                                                  
                                                                               
Representative Kelly questioned language used on Page 3,                       
Line 4, asking if it would become more "risky" when more                       
wealth was involved.  Mr. Thwaites commented that the risk                     
would have to be in line with the amount of money                              
available.  The normal investment standard would require                       
only a fractional share of high-risk investment versus the                     
other.  "Other resources of the beneficiaries" relates to                      
situations where there might be children in a family with                      
developmental disabilities.  There could be a greater                          
distribution to the child with the disability.  The                            
language opens the flexibility for the fiduciary to make                       
those kinds of decisions on distribution.                                      
                                                                               
Representative Kelly questioned the language on Page 4,                        
Line 16.  Mr. Thwaites noted that language indicated in                        
section (a) that the trustee "shall" not "may" exercise                        
reasonable skill and caution in selecting an agent.                            
                                                                               
Representative Kelly asked if section (b) would relate to                      
section (d).  Would the agent need to be bonded.  Mr.                          
Thwaites explained that in the bank licensing process, most                    
of the probate codes require bonding unless the entity                         
acting as the fiduciary is either exempt from the statute                      
or they have some other type of insurance protection.                          
Representative Kelly understood that section (c) would                         
require that someone bonded would be obligated.                                
                                                                               
Representative Kelly inquired if the current prudent                           
standards are now a problem.  Mr. Thwaites replied that                        
they have been.  There have been in some estates, certain                      
assets which were not trust quality, and they were required                    
to be liquidated, against the families wishes.  That action                    
resulted because the prudent standards, which currently                        
exist, require the fiduciary to have a certain number of                       
assets to qualify, even though the family might want the                       
assets to be maintained.                                                       
                                                                               
Representative J. Davies asked about the prohibition of the                    
review.  Mr. Thwaites noted that the bill would require a                      
standard of care for the fiduciary to review decisions.  If                    
there is a conflict between trusts, the proposed act would                     
provide more freedom to make exceptions under the right                        
case.  Independent approval should be obtained.                                
                                                                               
Mr. Thwaites added that the legislation would require that                     
there be an evaluation if a conflict exists.  They would be                    
required to look at the beneficiaries of both trusts to                        
make sure that there was equal treatment.                                      
                                                                               
Representative J. Davies reiterated concern that by being                      
the manager of a trust, under the prudent person rule,                         
there is a duty to manage both trusts for the benefit of                       
the beneficiaries.  If a person was in the business of                         
selling one trust for another, there would be an apparent                      
conflict of interest which could result in a determent in                      
one trust and a benefit to the other trust.  Mr. Thwaites                      
explained that the conflict concern before was too strict;                     
this legislation has chosen to give the discretion and                         
liability to the trustee.                                                      
                                                                               
Mr. Thwaites continued, common law has reinforced stricter                     
standards.  Most of the conservative fiduciaries around the                    
country have a list of trust quality assets, which excludes                    
common trust funds and mutual funds.                                           
                                                                               
In response to Representative Mulder, Mr. Thwaites said                        
that the settler of a trust could establish specific                           
standards in the trust that are wider than what was                            
contained under the prudent man rule.  That has been                           
narrowed over the years.  The typical minimum rate charge                      
in Alaska to manage a trust account is around $1000 dollars                    
per year or .75% of the account value, whichever is                            
greater.                                                                       
                                                                               
STEVE NOEY, DIRECTOR, ALASKA TRUST COMPANY, ANCHORAGE,                         
voiced support for the purposed legislation.                                   
                                                                               
Representative J. Davies pointed out that language on Page                     
2, Line 11-14, indicates that the prudent investor rule is                     
the default rule; it would be expanded or eliminated by                        
provisions of the trust and the trustee would not be                           
liable.  He voiced concern with the possibility of                             
eliminating the prudent investor rule.  Mr. Thwaites stated                    
that any court would repeal that rule if it was not                            
appropriately requested.                                                       
                                                                               
Representative J. Davies asked if there were situations,                       
which might not be prudent.  He struggled with use of the                      
word "eliminated".  Mr. Thwaites ascertained this was how                      
the standard had been developed.  The term fiduciary means                     
that you look after the other party's interest more than                       
you would look after your own.  The bill addresses only the                    
investment standards.  The legislation is an attempt to                        
open the door, providing as much flexibility as possible,                      
for the planners.                                                              
                                                                               
HB 321 was HELD in Committee for further consideration.