02/25/2022 01:30 PM House JUDICIARY

                 SB 11-COMMUNITY PROPERTY TRUSTS                                                                            
                                                                                                                                
1:46:06 PM                                                                                                                    
                                                                                                                                
CHAIR CLAMAN announced  that the next order of  business would be                                                               
SENATE BILL  NO. 11, "An  Act relating to community  property and                                                               
to  community property  trusts;  and providing  for an  effective                                                               
date."                                                                                                                          
                                                                                                                                
1:46:24 PM                                                                                                                    
                                                                                                                                
SENATOR TOM  BEGICH, Alaska State Legislature,  as prime sponsor,                                                               
introduced  SB  11.    He  stated that  the  bill  would  address                                                               
community  property  trusts  and   had  been  introduced  in  the                                                               
previous legislature.   He stated  that the bill would  provide a                                                               
reinterpretation  of  the  community trust  laws  established  in                                                               
1998.   He  stated  that  the assumption  has  been trusts  would                                                               
include   the  appreciation   of  assets.     He   quoted  former                                                               
Representative  Joe Ryan,  who said,  "When one  of the  partners                                                               
dies, the basis  for the value of  the asset is that  at which it                                                               
was  purchased and  any appreciation  of  that on  behalf of  the                                                               
estate."  He stated that a  recent court decision did not include                                                               
appreciation in  the valuation of assets.   He stated that  SB 11                                                               
would  remove   ambiguity  and  would  more   accurately  reflect                                                               
legislative intent.   He added that  there would be no  impact on                                                               
pending legislation,  and the bill  would include a  provision to                                                               
ensure  no lawsuits  occurring  prior to  the  law taking  effect                                                               
would be impacted.                                                                                                              
                                                                                                                                
1:49:09 PM                                                                                                                    
                                                                                                                                
TREVOR   BAILLY,  Staff,   Senator  Tom   Begich,  Alaska   State                                                               
Legislature,  on   behalf  of  Senator  Begich,   prime  sponsor,                                                               
presented  the  sponsor  statement  [included  in  the  committee                                                               
packet] which read as follows [original punctuation provided]:                                                                  
                                                                                                                                
     Alaska  is  a  state  with  favorable  trust  laws  and                                                                    
     favorable laws for  property ownership between spouses.                                                                    
     Alaska   allows  for   "opt   in"  community   property                                                                    
     ownership between  married spouses.  Community property                                                                    
     ownership  can  provide  tremendous tax  advantages  to                                                                    
     spouses. In Alaska, residents  can enter into community                                                                    
     property  agreements,  and residents  and  nonresidents                                                                    
     can enter  into Alaska community property  trusts. This                                                                    
     benefits  the  individuals entering  these  agreements,                                                                    
     the  trust industry  of Alaska,  increases deposits  in                                                                    
     Alaska banks  and through the revenue  generated by the                                                                    
     formation of a new trust, the state.                                                                                       
                                                                                                                                
     Community  property  is  simply  a  way  to  own  joint                                                                    
     property. A  common way to  enter a  community property                                                                    
     agreement  is in  conjunction with  one's spouse.  Each                                                                    
     party must elect into this  agreement and the agreement                                                                    
     provides,   most   commonly,    equal   ownership   and                                                                    
     management of specific property.                                                                                           
                                                                                                                                
     Currently,  community property  has  a significant  tax                                                                    
     advantage. When  a spouse  dies, community  property is                                                                    
     placed into a category  that allows tax advantages when                                                                    
     that  property is  sold. To  realize these  advantages,                                                                    
     appreciation  and  income   must  be  characterized  as                                                                    
     community property.                                                                                                        
                                                                                                                                
     The default  rule has generally been  that appreciation                                                                    
     and income on community  property will be characterized                                                                    
     as  community property,  unless  otherwise declared  in                                                                    
     the  community  property  trust. Trust  attorneys  have                                                                    
     attested to  this interpretation, however  recent court                                                                    
     rulings  have  created  an ambiguous  understanding  of                                                                    
     this  general criterion.  This legislation,  consistent                                                                    
     with  industry  understandings   of  trusts,  seeks  to                                                                    
     clearly   define   community  property   as   including                                                                    
     appreciation and income on community property.                                                                             
                                                                                                                                
     SB 11  establishes a  clear definition  of appreciation                                                                    
     and income  as community  property, as intended  by The                                                                    
     Community   Property  Trust   Act.  Portions   of  this                                                                    
     legislation also  have a retroactive effective  date of                                                                    
     May 23, 1998.                                                                                                              
                                                                                                                                
MR. BAILLY provided the sectional analysis [included in the                                                                     
committee packet] which read as follows [original punctuation                                                                   
provided]:                                                                                                                      
                                                                                                                                
     Section 1. Clarifies intent of  subsection (h) under AS                                                                    
     34.77.030  to  ensure   any  financial  gains  directly                                                                    
     related  to appreciation  of community  property trusts                                                                    
     are treated  as community  property unless  legal trust                                                                    
     documents clearly state otherwise.                                                                                         
                                                                                                                                
     Section 2. Adds a new  subsection under AS 34.77.030 to                                                                    
     retroactively  apply the  above changes  in statute  to                                                                    
     community property  trust agreements established  on or                                                                    
     after  May  23,  1998.  This section  also  applies  an                                                                    
     existing  statutory definition  of "community  property                                                                    
     trust. "                                                                                                                   
                                                                                                                                
     Section 3.  Adds as a  new uncodified law of  the State                                                                    
     of Alaska to  ensure above changes do  not impact court                                                                    
     actions or  proceedings that began before  Section 1 of                                                                    
     this Act takes effect.                                                                                                     
                                                                                                                                
     Section 4. Establishes a  retroactivity date of Section                                                                    
     1 of this Act as May 23, 1998.                                                                                             
                                                                                                                                
          Section 5. States Section 1 and Section are                                                                           
    immediately    effective   upon    passage   of    this                                                                     
     legislation.                                                                                                               
                                                                                                                                
1:53:26 PM                                                                                                                    
                                                                                                                                
BILL  PEARSON, Shareholder,  Foley  and  Pearson, P.C.,  provided                                                               
invited  testimony in  support  of SB  11.   He  offered a  brief                                                               
biography, including  his time as  an attorney  practicing estate                                                               
planning.   He  stated  that  SB 11  would  provide an  important                                                               
technical fix.                                                                                                                  
                                                                                                                                
1:54:27 PM                                                                                                                    
                                                                                                                                
LINDA  HULBERT, Registered  Representative  and Insurance  Agent,                                                               
New York  Life, provided invited  testimony in support of  SB 11.                                                               
She  stated  that her  support  is  on  behalf of  her  insurance                                                               
clients.  She shared that she  has been in business in Alaska for                                                               
over 30  years.  She  stated that the proposed  legislation would                                                               
be of benefit to her clients,  as it would affect their wills and                                                               
trusts.                                                                                                                         
                                                                                                                                
1:55:53 PM                                                                                                                    
                                                                                                                                
MATTHEW BLATTMACHR,  President and Chief Executive  Officer, Peak                                                               
Trust Company,  provided invited testimony  in support of  SB 11.                                                               
He echoed  previous testimony and  stated that  SB 11 would  be a                                                               
technical and clarifying change to the law.                                                                                     
                                                                                                                                
SENATOR BEGICH disclosed  that a member of his staff  is a client                                                               
of Ms. Hulbert.                                                                                                                 
                                                                                                                                
1:57:25 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE VANCE asked  why the bill would  be retroactive to                                                               
1998.  She questioned the effects from the intervening time.                                                                    
                                                                                                                                
SENATOR BEGICH  answered that the  Alaska Community  Property Act                                                               
became  effective  on  the  1998  date, and  there  has  been  an                                                               
understanding the  values of assets  would appreciate  over time.                                                               
He stated that a recent  court ruling created ambiguity regarding                                                               
appreciation  in  the  value  of  assets.   He  stated  that  the                                                               
retroactive date  would hold harmless  the hundreds  of thousands                                                               
of  individuals  holding  community   property  trusts,  and  any                                                               
pending legal actions would not be  affected by the passage of SB
.                                                                                                                             
                                                                                                                                
REPRESENTATIVE  VANCE  referred to  an  excerpt  of the  document                                                               
entitled, "SB  11 Supporting Document -  Community Property Trust                                                               
Act.pdf,"  [included  in the  committee  packet,]  which read  as                                                               
follows [original punctuation provided]:                                                                                        
                                                                                                                                
     THE CONSEQUENCES  OF THIS TRUST MAY  BE VERY EXTENSIVE,                                                                    
     INCLUDING,  BUT  NOT  LIMITED   TO,  YOUR  RIGHTS  WITH                                                                    
     RESPECT TO CREDITORS AND OTHER THIRD PARTIES,                                                                              
     AND  YOUR  RIGHTS  WITH YOUR  SPOUSE  BOTH  DURING  THE                                                                    
     COURSE OF YOUR  MARRIAGE AND AT THE TIME  OF A DIVORCE.                                                                    
     ACCORDINGLY,  THIS  AGREEMENT  SHOULD  ONLY  BE  SIGNED                                                                    
     AFTER CAREFUL CONSIDERATION. IF YOU HAVE ANY                                                                               
     QUESTIONS  ABOUT   THIS  AGREEMENT,  YOU   SHOULD  SEEK                                                                    
     COMPETENT ADVICE.  (c) A  community property  trust may                                                                    
     not adversely affect the right of a child to support.                                                                      
                                                                                                                                
REPRESENTATIVE VANCE asked for further explanation.                                                                             
                                                                                                                                
SENATOR BEGICH  answered that the  language had been  included in                                                               
the original  Act.   He explained  that it  had been  intended to                                                               
inform  parties  of their  obligations  in  entering a  community                                                               
trust.                                                                                                                          
                                                                                                                                
2:01:51 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  EASTMAN  questioned  the status  of  the  lawsuit                                                               
which had prompted the filing of the proposed bill.                                                                             
                                                                                                                                
SENATOR BEGICH  deferred to the  invited testifiers to  provide a                                                               
status  of the  court case.   He  added that,  regardless of  the                                                               
status of the  case, the bill was drafted so  it would not affect                                                               
any litigation pending prior to the effective date of the bill.                                                                 
                                                                                                                                
MR. PEARSON  pointed out that  Phillips v.  Bremner-Phillips, 477                                                             
P.3 626  (2020), had had a  final judgment issued.   He expressed                                                               
the opinion that the case may  have been remanded to the Superior                                                               
Court of Alaska.                                                                                                                
                                                                                                                                
CHAIR CLAMAN  confirmed that the  case is  final, and it  had not                                                               
been remanded to the Superior Court of Alaska.                                                                                  
                                                                                                                                
REPRESENTATIVE EASTMAN  asked whether ambiguity as  this could be                                                               
avoided in the future.                                                                                                          
                                                                                                                                
SENATOR  BEGICH  answered  that  the  language  in  the  proposed                                                               
legislation was  developed as  a direct  result of  the ambiguity                                                               
which prompted the lawsuit.   He added that former Representative                                                               
Joe Ryan had testified that the  assets could be sold, with gains                                                               
realized without  paying federal  taxes.  It  was a  statement of                                                               
intent that  the gains were  intended to be part  of appreciation                                                               
[of assets.]                                                                                                                    
                                                                                                                                
2:05:16 PM                                                                                                                    
                                                                                                                                
SENATOR  BEGICH, in  response to  a question  from Representative                                                               
Kreiss-Tomkins, stated  that the  passage of  the bill  would not                                                               
affect the case.   If litigation was taken today,  he posited, it                                                               
would be based  on the savings clause in current  law.  He stated                                                               
that SB 11 would remove  the ambiguity as to whether appreciation                                                               
would  be included.   In  response  to a  follow-up question,  he                                                               
stated that  should the court  case be brought after  the passage                                                               
of the bill, there would be a different outcome.                                                                                
                                                                                                                                
2:07:17 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE EASTMAN referred to  the savings clause and, given                                                               
the  law would  be changed,  questioned how  it would  be applied                                                               
retroactively.                                                                                                                  
                                                                                                                                
SENATOR  BEGICH answered  that the  two clauses  are deliberately                                                               
drafted  to  change the  law.    He  stated  that, prior  to  the                                                               
Phillips   v.  Bremner-Phillips   case,  the   court  had   never                                                             
previously interpreted  these matters,  and any  litigation filed                                                               
prior to the effective  date of SB 11 would not  be affected.  He                                                               
stated that the passage of SB  11 would demonstrate this had been                                                               
the legislature's  intent from the start.   He added that  he was                                                               
unaware of any  active litigation which would be  affected by the                                                               
interpretation of the associated law.                                                                                           
                                                                                                                                
2:10:37 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE EASTMAN  asked whether advice given  to clients by                                                               
attorneys  based on  flawed legislation  would put  clients at  a                                                               
disadvantage.                                                                                                                   
                                                                                                                                
SENATOR  BEGICH  referred  to  the  invited  testifier,  who  had                                                               
demonstrated the  advice given  to hundreds  of clients  had been                                                               
based on legislative intent, which is offered in SB 11.                                                                         
                                                                                                                                
2:13:04 PM                                                                                                                    
                                                                                                                                
CHAIR CLAMAN announced that SB 11 was held over.