Legislature(2021 - 2022)BARNES 124
02/02/2022 05:15 PM House LABOR & COMMERCE
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| Audio | Topic |
|---|---|
| Start | |
| SB131 | |
| SB11 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | SB 131 | TELECONFERENCED | |
| + | SB 11 | TELECONFERENCED | |
| + | TELECONFERENCED |
SB 11-COMMUNITY PROPERTY TRUSTS
5:45:25 PM
CO-CHAIR SPOHNHOLZ announced that the final order of business
would be COMMITTEE SUBSTITUTE FOR SENATE BILL NO. 11(JUD), "An
Act relating to community property and to community property
trusts; and providing for an effective date."
5:45:51 PM
SENATOR TOM BEGICH, Alaska State Legislature, as the prime
sponsor of CSSB 11(JUD), recounted that major legislation on
trusts was signed into law in 1997, and that soon afterward,
House Bill 199 by Representative Joe Ryan was passed, which
provided that a couple can opt to put their assets into a
community trust. Representative Ryan testified at the time that
a positive element of House Bill 199 was that on behalf of the
estate of a person in a community trust who has died, there
would be no tax liability on any appreciation in the basis (the
value of an asset at the time of purchase). Representative
Ryan's testimony indicated that appreciation of the asset was
critical in what he was trying to do. The intent in 1997 was
that if a married couple put assets into a community trust and
then 25 years later one dies before the other, the value of the
assets in that community trust would include the appreciation as
one of those assets.
SENATOR BEGICH explained, however, that a recent court decision
created ambiguity about that intent when the decision indicated
that the value of the asset was the value at the time of the
community trust as opposed to being the value of the asset
accrued over time. He said CSSB 11(JUD) clarifies that the
income and appreciation combined is what was intended by the
author of the original bill; if enacted, it incorporates those
elements of the Uniform Marital Property Act that were already
said would be incorporated. It is an elect an option, it is not
mandatory like some of the community property states. To not
create constitutional issues with retroactivity, CSSB 11(JUD)
includes a savings clause, thereby effectively reminding people
what the meaning was back when the law passed. The bill is
designed such that it would not affect any litigation that may
be pending, or any litigation entered prior to CSSB 11(JUD)
becoming law. The bill fixes a mistake in interpretation. When
there is an ambiguity in any interpretation, the court often
looks to the legislature to correct or clarify that ambiguity,
which is what CSSB 11(JUD) does.
5:50:28 PM
TREVOR BAILLY, Staff, Senator Tom Begich, Alaska State
Legislature, provided the sponsor statement and sectional
analysis for CSSB 11(JUD) on behalf of Senator Begich, prime
sponsor of the bill. He paraphrased from the sponsor statement,
which read [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.
5:53:05 PM
MR. BAILLY next paraphrased from the sectional analysis, which
read [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.
5:54:20 PM
CO-CHAIR SPOHNHOLZ shared her understanding that the bill as
written would not nullify previously taken court action, but it
would allow currently existing community property trusts to have
that appreciation incorporated into the value moving forward.
SENATOR BEGICH confirmed that that understanding is correct.
5:54:52 PM
REPRESENTATIVE MCCARTY drew attention to the sponsor statement,
first paragraph, fourth line, which states that residents and
nonresidents can enter Alaska community property trusts. He
inquired about how far reaching the ability is for nonresidents
to be involved in this.
SENATOR BEGICH replied that that has been allowed under the law
since 1998. He recounted that Representative Ryan talked about
there being 41 states (at that time) that were not mandatory
community property states. Those 41 states have had the ability
to take advantage of Alaska's laws since passage of the original
[Community Property Trust Act], otherwise Alaska would probably
be in violation of the commerce clause of the federal
constitution. So, residents and nonresidents are mentioned
because the community property trusts are open. Senator Begich
pointed out that this leads to an enhanced ability for people
who don't live in Alaska to take advantage of the state's
community property trust law, which increases income into Alaska
and provides some support for the banking systems in the state.
It makes Alaska an attractive place to enter a community trust
if someone wishes, so CSSB 11(JUD) creates an incentive. Not
having this bill in place, and having the ambiguity, acts as a
disincentive so that people are disinclined to come to Alaska to
start their community trust if they choose to have one.
5:57:08 PM
REPRESENTATIVE SCHRAGE requested an explanation of the effective
date.
SENATOR BEGICH responded that there are two effective dates in
the bill. The first effective date, which is Section 4, is the
retroactivity clause that is an effective date. The second only
deals with Sections 1 and 4 of the Act to ensure that the
retroactivity becomes effective on passage of the effective
date. A trigger must be had to make the retroactivity become
effective; in Section 1 an effective date is not needed for the
other two, so just Sections 1 and 4 are immediate.
REPRESENTATIVE SCHRAGE asked why beginning in 1998.
SENATOR BEGICH answered that that's the date when the law became
effective immediately.
5:58:47 PM
SENATOR BEGICH noted that Linda Hulbert, an invited testifier
who may or may not be online, has a financial relationship in a
trust relationship with a member of his staff. He stated that
has had no impact and is not it a reason why this legislation
was considered.
CO-CHAIR SPOHNHOLZ responded that Ms. Hulbert is not online.
CO-CHAIR SPOHNHOLZ [opened invited testimony on CSSB 11(JUD)].
5:59:30 PM
MATTHEW BLATTMACHR, President and CEO, Peak Trust Company,
provided invited testimony in support of CSSB 11(JUD). He said
he personally supports the bill, as does Peak Trust Company. He
said thousands of Alaskans, if not tens of thousands, have
utilized this provision in Alaska statutes for the last 25
years. The intent of all those plans was that accumulation of
income and appreciation would be included in community property.
This bill corrects an error and gets things back to what was
originally intended.
6:00:59 PM
ABIGAIL O'CONNOR, Attorney, O'Connor Law LLC, Alaska Trust &
Estate Professionals Inc. (ATEP), provided invited testimony in
support of CSSB 11(JUD). She said she represents numerous
clients in Alaska who have community property trusts. Having
appreciation and income also be community property, she
continued, is a critical element of the whole community property
structure and planning, without it there is not much point to
doing it. It is critical that appreciation and income also be
community property. She said she supports CSSB 11(JUD) because
going forward trusts can be written to include this language;
however, given the court ruling, trusts created prior to this
time may not have that language and the bill solves that problem
for those Alaskans.
6:02:45 PM
CO-CHAIR SPOHNHOLZ [held over CSSB 11(JUD)].