03/11/2022 01:00 PM House JUDICIARY

                SB 11-COMMUNITY PROPERTY TRUSTS                                                                             
                                                                                                                                
1:07:38 PM                                                                                                                    
                                                                                                                                
CHAIR CLAMAN announced  that the only order of  business would be                                                               
CS FOR  SENATE BILL  NO. 11(JUD), "An  Act relating  to community                                                               
property and to  community property trusts; and  providing for an                                                               
effective date."                                                                                                                
                                                                                                                                
REPRESENTATIVE EASTMAN  asked for  the status  of any  changes to                                                               
federal regulations associated with marital trusts.                                                                             
                                                                                                                                
1:08:54 PM                                                                                                                    
                                                                                                                                
SENATOR  TOM BEGICH,  prime  sponsor,  Alaska State  Legislature,                                                               
stated that he  was unaware of any federal  actions pertaining to                                                               
the proposed bill.  He offered  that the bill had been drafted in                                                               
response  to  a court  case  which  had identified  ambiguity  in                                                               
existing statute pertaining to the appreciation of value.                                                                       
                                                                                                                                
REPRESENTATIVE  EASTMAN asked  whether community  property trusts                                                               
are the same as grantor property trusts.                                                                                        
                                                                                                                                
SENATOR BEGICH deferred to invited testifiers.                                                                                  
                                                                                                                                
1:10:06 PM                                                                                                                    
                                                                                                                                
ABIGAIL O'CONNOR,  Attorney, O'Connor  Law Office,  LLC, answered                                                               
that  a  community property  trust  is  a  grantor trust,  but  a                                                               
grantor  trust is  not necessarily  a  community property  trust.                                                               
She added  that a grantor trust  is one for which  the grantor is                                                               
treated as the owner for income  tax purposes.  She stated that a                                                               
grantor trust may be either  irrevocable or revocable.  She added                                                               
that a  community property trust, during  the grantor's lifetime,                                                               
is revocable, or  for a living trust, the income  is taxed to the                                                               
grantors.                                                                                                                       
                                                                                                                                
REPRESENTATIVE   EASTMAN  asked   whether  grantor   trusts  have                                                               
mandatory Internal Revenue Service (IRS) filings.                                                                               
                                                                                                                                
MS.  O'CONNOR answered  that any  income to  the grantor's  trust                                                               
during the grantor's lifetime would  be reported on the grantor's                                                               
income tax  return.  She added  that, following the death  of the                                                               
first grantor,  part of the  trust becomes irrevocable,  then the                                                               
irrevocable trust is "siphoned off"  and may result in a separate                                                               
filing requirement.   She clarified that while  both grantors are                                                               
still alive, there is no separate return required.                                                                              
                                                                                                                                
REPRESENTATIVE EASTMAN  asked whether the initial  formation of a                                                               
trust   would  address   any   potential  ambiguities   regarding                                                               
appreciation of assets.                                                                                                         
                                                                                                                                
MS.  O'CONNOR  answered that,  in  a  perfect  world, yes.    She                                                               
speculated that  practitioners [drafting trusts] assume  that the                                                               
statute included this.   She added that some  trusts were created                                                               
without the  inclusion of  language regarding  appreciation, with                                                               
the  assumption appreciation  was considered.   She  stated that,                                                               
should income  and appreciation not  be community  property, then                                                               
there is no point in having community property law in Alaska.                                                                   
                                                                                                                                
SENATOR BEGICH stated  that the comments offered  by Ms. O'Conner                                                               
were  the  reason  the  the  bill  was  drafted  and  before  the                                                               
committee.    He  pointed  out  the  intention  of  the  original                                                               
legislation was  that income and appreciation  should be included                                                               
in community property.   He stated that  the proposed legislation                                                               
would remove any ambiguity from the statute.                                                                                    
                                                                                                                                
1:14:09 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  KREISS-TOMKINS asked  for an  explanation of  the                                                               
retroactivity in Section 1 of the proposed legislation.                                                                         
                                                                                                                                
SENATOR  BEGICH expressed  the opinion  that  thousands of  trust                                                               
agreements were drafted with the  assumption the appreciation and                                                               
income would be  a part of the  trusts.  He stated  that when the                                                               
court case  occurred, the  matter was called  into question.   He                                                               
noted that  a savings clause  exists in the  proposed legislation                                                               
so  any  cases filed  before  the  effective  date would  not  be                                                               
impacted, should it pass.                                                                                                       
                                                                                                                                
REPRESENTATIVE  KREISS-TOMKINS asked  whether May  23, 1998,  was                                                               
the initial date of the original legislation.                                                                                   
                                                                                                                                
SENATOR BEGICH answered that it  was exactly the date this became                                                               
law.                                                                                                                            
                                                                                                                                
REPRESENTATIVE  EASTMAN   observed  that  it  is   rare  for  the                                                               
legislative intent to be so clear,  and this makes the process of                                                               
considering the proposed legislation easier.                                                                                    
                                                                                                                                
REPRESENTATIVE   KREISS-TOMKINS  commented   that  he   would  be                                                               
extremely  cautious regarding  trust-related legislation  because                                                               
of cases which have resulted in  a "race to the bottom" for trust                                                               
laws.    He   added  that  there  has   been  flawed  legislation                                                               
previously  introduced,  which  fortunately  did not  pass.    He                                                               
expressed the  opinion that flawed legislation  and its resulting                                                               
"cottage  industry"  would  be  tantamount  to  making  the  rich                                                               
richer.                                                                                                                         
                                                                                                                                
1:18:18 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SNYDER  moved  to  report  CSSB  11(JUD)  out  of                                                               
committee  with individual  recommendations and  the accompanying                                                               
fiscal  notes.    There  being no  objection,  CSSB  11(JUD)  was                                                               
reported out of the House Judiciary Standing Committee.