Legislature(2017 - 2018)BELTZ 105 (TSBldg)
04/05/2017 09:00 AM Senate LABOR & COMMERCE
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| Audio | Topic |
|---|---|
| Start | |
| SB95 | |
| SB94 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | SB 95 | TELECONFERENCED | |
| += | SB 94 | TELECONFERENCED | |
| + | TELECONFERENCED |
SB 94-TRUSTS;COMM PROP TRUSTS; POWERS OF APPT
10:18:15 AM
CHAIR COSTELLO reconvened the meeting and announced the
consideration of SB 94. She stated that the intent is to hear a
high-level overview of the bill and take public testimony. A
detailed sectional analysis will be provided in a subsequent
hearing.
10:19:37 AM
WESTON EILER, Staff, Senator Mia Costello, Alaska State
Legislature, introduced SB 94 on behalf of the sponsor speaking
to the following sponsor statement:
Senate Bill 94 improves estate and tax planning
options for both Alaskan and non-Alaskans. Since
passage of the Alaska Trust Act and enhancements to
state policy in 1990s, Alaska has been a leader in the
estate planning industry allowing Alaskans to
establish trusts to the benefit of our state's
economy. This legislation advances Alaska's
competitive advantage through three improvements in
the area of trust and estate planning law.
"Decanting" is a commonly used tool to correct
drafting errors, reduce costs of trust administration,
and other reasons. Just as wine is decanted by pouring
liquid from one container to another - trust decanting
happens when one trust pays its assets to another
trust. Decanting is used by Alaskans who are looking
to update their trust documents. The flexibility it
provides also allows non-residents to bring their
business to Alaska. Alaska has had a decanting statute
for nearly 20 years, Senate Bill 94 would provide
additional flexibility and clarification to this
statute provision.
SB 94 also clarifies certain aspects of Alaska law
relating to Powers of Appointment in statute so they
can be used more efficiently. One of the most powerful
estate planning tools is to grant someone, such as a
beneficiary, a "power of appointment," which allows
that person the right to specify where property will
pass at certain times, such as when the beneficiary
dies.
SB 94 would clarify state law to say that a trustee
can acquire insurance to protect the trust assets from
claims of third parties and the trustee from third
party and beneficiary claims and to charge the
premiums to the trust. Alaska law grants trustees
powers to acquire insurance to protect the trust from
claims from third parties; however, certain aspects of
the powers are ambiguous and in need of clarification.
These laws and others enacted by the Legislature have
benefitted Alaskans, has resulted in millions of
dollars being deposited in financial institutions in
the state which has provided capital for Alaska
businesses, and provided significant work for many
Alaskans.
MR. EILER directed attention to the letters of support and
background documents in the bill packets.
CHAIR COSTELLO asked Mr. Blattmachr to provide some history of
Alaska trust law and why this bill is needed.
10:25:32 AM
MATTHEW BLATTMACHR, Vice President, Peak Trust Company,
explained that when the legislature passed the Trust Act in
1997, it made Alaska the premier jurisdiction to do trusts and
estate planning. SB 94 seeks to continue that by expanding the
laws regarding decanting and powers of appointment. These are
two areas where Alaska has fallen behind other states.
SENATOR GARDNER asked for clarification that the bill applies to
irrevocable trusts, and that the things the bill seeks to
achieve can already be done with a revocable trust.
MR. BLATTMACHR confirmed that SB 94 primarily deals with
irrevocable trusts, and that there are some capabilities, such
as decanting, that irrevocable trusts offer that revocable
trusts do not have. With decanting for example, you can revoke
or make an amendment to a revocable trust without a technical
mechanism, whereas an irrevocable trust cannot be changed
without a legal mechanism. Should a trust need to update itself,
decanting is the mechanism to do that.
SENATOR GARDNER asked if any provisions in SB 94 apply to
revocable trusts.
MR. BLATTMACHR said the insurance piece and the tracking of
trust assets would apply to revocable trusts, "but those would
likely only fall if you were using a trustee other than the
grantor."
CHAIR COSTELLO asked which sections of the bill apply to
insurance and tracking trust assets.
MR. BLATTMACHR said that Sections 2 and 3 address the purchase
of insurance and Section 23 addresses tracking trust assets.
SENATOR STEVENS asked if Alaskans are taking advantage of the
trust laws. He also asked how the state benefits from the trust
business.
MR. BLATTMACHR said Alaska's trust laws attract nonresidents to
do their planning business here and Alaskans that do estate
planning in the state are similarly benefitted. The state
benefits several ways one of which is from the 2.7 percent tax
on life insurance premiums. He explained that in 1999 the
legislature passed a tax regime that is very attractive for
those in a high tax bracket. That has attracted nonresidents to
purchase large policies and Alaska receives about $7 million a
year from the premium tax. The state also benefits from the fee
that is paid to register a trust with the state. Many trusts use
LLCs and those pay a biannual tax to the state.
SENATOR STEVENS asked what percentage of Alaskans use this
versus the percentage of nonresidents that do their estate
planning in Alaska.
MR. BLATTMACHR said Peak Trust sees more non-Alaskans than
Alaskans for planning because Alaskans don't need their services
as a corporate trustee. However, many of the practitioners that
Peak Trust works with do most of their planning for Alaskans.
10:33:12 AM
SENATOR MEYER asked for an explanation of the fees.
MR. BLATTMACHR said every irrevocable trust is supposed to
register with the state and pay a $40 fee.
SENATOR MEYER asked how many trusts are formed in Alaska.
MR. BLATTMACHR said his organization has opened more than 2,800
trusts, all of which have been registered with the state.
SENATOR MEYER asked what makes Alaska trust laws so much more
attractive compared to other states.
MR. BLATTMACHR said there are a variety of things that make
Alaska the premier jurisdiction including: the ability to do
self-settled trusts; the rule that allows trusts to continue in
perpetuity; and the option to adopt opt-in community trust laws
that allow the surviving spouse to get a double step-up in
basis.
SENATOR MEYER asked if someone who wants to form a trust works
through a financial planner, an attorney, or both.
MR. BLATTMACHR said there are a variety of ways but legal
counsel is needed to draft the trust.
10:36:07 AM
CHAIR COSTELLO opened public testimony on SB 94 and directed
members' attention to the letter of opposition in the packets
from David Shaftel.
10:36:45 AM
DAVID G. SHAFTEL, J.D., LL.M., Shaftel Law Offices, P.C., stated
that he is an attorney in Anchorage who has been practicing in
the area of estate planning and estate and trust administration
since the early 1980s. He is also a member of a group of
attorneys and trust officers who have worked with the
legislature since 1998 to improve Alaska's trust and estate
statutes to make it one of the premier jurisdictions.
He reported that he participated in drafting the decanting
provisions in the bill. These are found in Sections 4-22 and 24-
28. He explained that decanting is a way of modifying an
existing trust to make changes or cure problems. He said the
current statutes have safeguards to protect the settler's
intent, but the proposed provisions relating to decanting do not
provide adequate safeguards for Alaskans who have existing
trusts. The proposed provisions would apply to every trust
that's been created, not just future trusts.
He provided an example of a typical estate plan where the assets
go to the surviving spouse then when that person dies the assets
go to the children in equal shares. Under current statute the
trustee is governed by an ascertainable standard which is
typically health, education, maintenance, and support.
Unfortunately, he said, the proposed provisions of SB 94 do not
provide this kind of protection. As proposed, a trustee who is
not a settler or a beneficiary can change the ascertainable
standard to one of absolute discretion. The interest of certain
beneficiaries can be eliminated to the benefit of just one
favored beneficiary.
MR. SHAFTEL advised that he submitted a memo describing his
concerns and offered suggestions to tighten the bill if the
committee feels this type of flexibility is desirable. This
includes several suggestions for giving notice to everyone about
what is occurring and for increasing the fiduciary obligations
of the trustee. He also submitted an email from the reporter of
the Uniform Trust Decanting Act. This is a uniform law that was
enacted in 2015. The reporter is Susan Bart, an attorney in
Chicago. She was very critical of these proposed provisions and
how they affect the settler's intent and the possible tax
consequences of these types of provisions.
10:42:19 AM
The present law protects the settler's intent through the
ascertainable standard, but the proposed bill does away with
that distinction. The new approach focuses on who is the
trustee.
He noted that he submitted a memo highlighting the deficits and
offering suggestions to tighten the bill if the proposed
flexibility is desirable. There are several suggestions for
giving notice for everyone about what is occurring and for
increasing the fiduciary obligations of the trustee. He also
submitted an email from attorney Susan Bart, the reporter of the
Uniform Trust Decanting Act. He said she is very critical of the
proposed provisions and how they affect the settler's intent and
the possible tax consequences of the flexible provisions.
CHAIR COSTELLO said committee members have copies of your letter
and the email from Susan Bart is being distributed. She asked
Mr. Shaftel to continue his public testimony when the bill is
heard again.
10:45:49 AM
CHAIR COSTELLO held SB 94 in committee with public testimony
open.