Legislature(2005 - 2006)CAPITOL 120
04/07/2006 01:00 PM House JUDICIARY
| Audio | Topic |
|---|---|
| Start | |
| SB54 | |
| SB298 | |
| HB413 | |
| HB347 | |
| HB276 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | SB 54 | TELECONFERENCED | |
| + | SB 298 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | HB 413 | TELECONFERENCED | |
| += | HB 347 | TELECONFERENCED | |
| += | HB 276 | TELECONFERENCED | |
SB 298 - TRUSTS: CHALLENGES; CLAIMS; LIABILITIES 1:28:10 PM CHAIR McGUIRE announced that the next order of business would be CS FOR SENATE BILL NO. 298(JUD), "An Act relating to loans from trust property; relating to a trustee's power to appoint the principal of a trust to another trust; relating to challenges to, claims against, and liabilities of trustees, beneficiaries, and creditors of trusts and of trusts and estates; relating to individual retirement accounts and plans; relating to certain trusts in divorce and dissolutions of marriage situations; and providing for an effective date." [Before the committee was HCS CSSB 298(L&C).] 1:28:26 PM BRIAN HOVE, Staff to Senator Ralph Seekins, Senate Judiciary Standing Committee, Alaska State Legislature, speaking on behalf of the sponsor, Senator Seekins, relayed that SB 298 is another in a sequence of bills intended to keep Alaska competitive in the trust industry. This legislation, he opined, allows trust business and assets "to flow this way" and provides "clean industry" to the legal, accounting, and banking businesses [of Alaska]. 1:31:19 PM STEPHEN E. GREER, Attorney at Law, said he is supportive of the bill but would defer to its three drafters: David Shaftel, Beth Chapman, and Jonathan Blattmachr. He relayed that he has not heard objections from any quarter, and said, "Most of this is a cleanup matter." 1:32:27 PM DAVID G. SHAFTEL, Attorney at Law, Law Offices of David G. Shaftel, PC, relayed that he has been a member of a group of attorneys and trust officers who have participated in drafting proposed legislation [for Alaska] since 1997, and explained that SB 298 provides some procedural changes, some new provisions - all of which he characterized as being "very sound." He said the bill would be beneficial in the planning and administering of trusts and estates for those clients with Alaska residency, as well as make Alaska a more competitive market for nonresidents desiring to do trust business in this state. He highlighted that Alaska is foremost of eight states with similar laws and that the legislature - via the adoption of specific legislation - has enabled Alaska to remain in this lead position. REPRESENTATIVE GRUENBERG offered his belief that if one has a spendthrift trust, it's not generally considered property that's going to be divisible in a divorce, but noted that the last sentence of Section 14 says: Unless otherwise agreed to in writing by the parties to the marriage, this subsection does not apply to a settlor's interest in a self-settled trust with respect to assets transferred to the trust after the settlor's marriage. REPRESENTATIVE GRUENBERG opined that "it would be imminently fair" for the court to divide the trust assets in a divorce situation; he suggested, therefore, that a phrase be added to the end of Section 14 to read, "or immediately before the marriage in contemplation of marriage." CHAIR McGUIRE asked what effect [such a change] would have on prenuptial agreements. REPRESENTATIVE GRUENBERG suggested that a prenuptial agreement means "otherwise agreed to in writing." He explained that the reason for including the [exception for self-settled trusts in Section 14] is so that a trust is not established during a marriage for the purpose of ensuring that the trustee's property is not divided upon a divorce of that marriage. He said that he sees no difference between those trusts established during marriage and those established when "in contemplation of marriage." 1:38:42 PM MR. SHAFTEL informed the committee that prior to a marriage, a prospective spouse can transfer property into a "self-settled, discretionary, spend-thrift trust" prior to marriage and that trust would then not be subject to division in a subsequent divorce. He explained that the aforementioned sentence is being added to ensure that a person could not, after a marriage, put [a spouse's] assets into a self-settled, discretionary, spend- thrift trust so as to have those assets protected against a property division in a subsequent divorce. He said he does not interpret this additional language as anything to be concerned about, and suggested that should a person's fiancé not be agreeable to a prenuptial agreement, a possible remedy would be to not proceed with the marriage. REPRESENTATIVE ANDERSON surmised that this section prohibits a married party from transferring assets into a trust after the marriage occurred in order to protect his/her assets. REPRESENTATIVE GRUENBERG disagreed, and pointed out that AS 25.24.160(a)(4) currently says in part: (a) In a judgment in an action for divorce or action declaring a marriage void or at any time after judgment, the court may provide ... (4) for the division between the parties of their property, including retirement benefits, whether joint or separate, acquired only during marriage, in a just manner and without regard to which of the parties is in fault; however, the court, in making the division, may invade the property, including retirement benefits, of either spouse acquired before marriage when the balancing of the equities between the parties requires it; ... REPRESENTATIVE GRUENBERG specified that normally one can't [invade the property] unless there are special circumstances that require the court to do so. He then informed the committee that property acquired during the marriage by inheritance or gift is considered separate property as opposed to joint property. REPRESENTATIVE GRUENBERG surmised that Section 14 would ensure that in the event of a divorce or dissolution, the beneficiary's interest is not considered property subject to division under AS 25.24.160, and therefore the court couldn't invade [the property] even under special circumstances that require a balancing of the equity. 1:45:29 PM MR. SHAFTEL said a primary concern is that if there is a divorce, trust assets would be divided between both spouses and their children rather than remaining protected in the trust. The statutory laws of New York and California, he relayed, expressly provide that assets in trust cannot be divided in a subsequent divorce; however, there have been some recent cases in Colorado and other states that have moved in a variety of different directions and created some concern in this area, and this has led the informal group of which he is a member to propose the language of Section 14 so as to provide clarity on this matter. This is an extremely important policy provision, he opined. REPRESENTATIVE GRUENBERG indicated that he is concerned that a trust established just prior to a marriage could be improperly used by one spouse to keep what would normally be considered joint assets from being considered as such by the court in a subsequent divorce proceeding. CHAIR McGUIRE opined that Representative Gruenberg's suggested additional language won't clarify that [issue] because the language refers to "trust assets set aside in contemplation of a marriage". She pointed out that there could be a situation in which an individual sets up a trust and sets aside assets for possible [future] children, marries, and then places those assets in the trust. Without clarifying it in state law, a judge could decide to invade the corpus of that trust thus defeating the purpose for which the trust was established. REPRESENTATIVE GRUENBERG conceded that the language he proposed is too broad, and explained that he is attempting to address situations in which an individual establish a trust immediately before a marriage, in contemplation of it, with the individual as the beneficiary. He offered his understanding that a self- settled trust is a trust that one establishes for himself/herself and specifies himself/herself as the beneficiary. MR. SHAFTEL concurred. He asked Representative Gruenberg whether he could specify the period of time he would consider to be "immediately before." REPRESENTATIVE GRUENBERG suggested one month. He specified that he is referring to a time period in which the individual is absolutely getting married and is merely attempting to defeat the spouse's interest under AS 25.24.160. [Chair McGuire turned the gavel over to Representative Anderson.] REPRESENTATIVE ANDERSON asked whether a spouse in such a situation could simply argue that the trust was established in advance just for that purpose, and, if so, would there really be a need to change the statute. MR. SHAFTEL said it doesn't matter when the trust is established, rather the key point is when the assets get transferred to the trust. For example, if substantial assets were transferred to a self-settled trust five years after the marriage, those assets wouldn't be protected from being considered and divided in a subsequent divorce action. The aforementioned is why [Section 14] was included. With regard to Representative Gruenberg's concern, Mr. Shaftel said that if assets are transferred prior to a marriage, those assets belong to the individual who is not yet married. Unless there has been some representation made to the fiancé, an argument can be made that a transfer prior to the marriage should be completely protected. The committee could decide to maintain that policy and leave the provision as it is. 1:58:58 PM MR. SHAFTEL suggested, however, that if the committee desired to amend the legislation, the committee could simply add a provision that specifies that if a transfer is made to a trust within the 30-day period prior to marriage, the transferring party would need to notify the other party that such a transfer is being made. The aforementioned would allow the fiancé to be aware of what is happening; then, if it was of concern, the fiancé would have the choice of not entering into the marriage. MR. SHAFTEL, in response to a question, suggested that language such as, "unless written notice of a transfer is given within 30 days prior to marriage" could be inserted. In response to another question, he explained that any assets that were transferred after the marriage and the growth of those assets would not be protected and could be divided if there was a subsequent divorce. REPRESENTATIVE GRUENBERG characterized Mr. Shaftel's suggestion as a good amendment. H remarked that if the funds put in the self-settled trust were acquired from a relative as a gift or bequest, then it would be considered separate property that could only be invaded under the divorce law if the special equity provision required it, though any "marital funds" [could be invaded]. MR. SHAFTEL agreed. REPRESENTATIVE GRUENBERG suggested that Mr. Shaftel's concept could be the genesis of an acceptable amendment. MR. SHAFTEL reiterated that the concept would be that if someone transfers assets into a self-settled trust 30 days prior to a marriage, that party must give the fiancé notice of that transfer in order to obtain the protection provided by [Section 14]. 2:05:44 PM REPRESENTATIVE GRUENBERG [made a motion] to adopt Conceptual Amendment 1 such that if assets are transferred by one party to the marriage to a self-settled trust within 30 days before the marriage, the transferor must give written notice to the other party of the transfer. There being no objection, Conceptual Amendment 1 was adopted. 2:06:45 PM MITCHELL GANS, Professor, Hofstra University School of Law, noted that Alaska's statute of limitations on an informal accounting is 24 months, and characterized this as problematic from the perspective of both equity and efficiency because, for a formal accounting, one can go to court and trigger a statute of limitations period of 60 days or 90 days, and this would seem to be unfair and inequitable. MR. GANS said that with regard to efficiency, it would seem that if the trustee wanted to qualify for the shorter period, the trustee simply has to go through the formal procedure and petition the court. However, to avoid the cost of a formal accounting or petition, the [trustee] would have to wait two years, and the consequence of that is that it imposes costs on the trust, which would be borne by the beneficiary. In terms of protecting the rights of the beneficiary, it would seem that if the period were shortened and there were to be a focused timeframe within which there must be a decision, it would be more likely for the beneficiary to focus on and protect his/her rights rather than to allow them to expire or lapse inadvertently. REPRESENTATIVE ANDERSON asked if Mr. Gans had spoken with the sponsor of the legislation or its supporters. MR. GANS replied no. 2:10:17 PM BETHANN B. CHAPMAN, Attorney at Law, Faulkner Banfield, PC, offered her belief that Mr. Gans's concerns have been addressed such that the inconsistencies between an interim report and a final report have been resolved. MR. GANS agreed that the current version of the bill alleviates his concerns. 2:11:43 PM JONATHAN BLATTMACHR, Attorney at Law, Milbank, Tweed, Hadley & McCloy, LLP, informed the committee that he has been involved with Alaska trust legislation since its inception. He estimated that probably nine out of ten of his clients choose Alaska [in which to establish a trust]. The proposal before the committee, he opined, will certainly result in most of his clients continuing to choose Alaska. 2:12:52 PM RICHARD W. HOMPESCH, II, Attorney at Law, Hompesch & Evans, PC, relayed his support for SB 298. 2:13:22 PM PATRICK LUBY, Advocacy Director, AARP Alaska, encouraged the committee to continue to improve SB 298 and forward it from committee. 2:13:55 PM DOUGLAS BLATTMACHR, President, Chief Executive Officer, Alaska Trust Company, relayed his support for SB 298, adding his belief that it will continue to improve what Alaska has to offer, and thus continue to attract business to the state. 2:14:11 PM RICHARD S. THWAITES, JR, Attorney at Law, Thwaites, JR. LLC; Chairman, Alaska Trust Company Board, Alaska Trust Company, relayed his support for SB 298. REPRESENTATIVE ANDERSON, upon determining that no one else wished to testify, closed public testimony on SB 298. REPRESENTATIVE GARA said that he is concerned that [the bill] might limit the rights beneficiaries in relation to trustees; for example, two changes proposed will reduce the period of time in which a beneficiary can make a claim: Section 6 changes notice of a court proceeding from 90 days to 60 days, and changes the timeframe in which a beneficiary can file a claim from 60 days to 45 days. He asked if the aforementioned is really necessary, and offered his recollection of there being a battle over this a few years ago that resulted in the changes not being included in the legislation [that was adopted then]. MR. DOUGLAS BLATTMACHR offered his understanding that these changes are meant to provide consistency with the probate code. MS. CHAPMAN said the proposed change is intended to address an inconsistency within the statute that currently specifies that 90 days' notice of the court proceeding is required, and that the beneficiary then has 60 days after receiving the report [to file a claim with the court]. Because currently the time that the report is provided to the beneficiary and the time the petition is filed can be two different times, the desire was to tie everything to the same date, and this will make the trust laws consistent with the probate code so that there isn't a lot of distinction between whether one is a beneficiary of a trust or of an estate. Furthermore, even at the reduced time frames of 60 days and 45 days, it's substantially longer than what's currently provided under the probate code. MS. CHAPMAN explained if she were to be the personal representative of an estate and she intended to issue her final accounting and file it with the court for approval of the accounting so as to terminate her authority, under the probate code, she would only be required to provide 14 days notice of the hearing. This means that the hearings occur within 14 days and the beneficiaries aren't given any additional length of time in which to respond. The probate code also includes a provision that allows [the personal representative] to give notice of the distribution of the estate to a beneficiary with only 30 days' notice; if the beneficiary doesn't object within 30 days, the beneficiary's rights are terminated. "While we are trying ... to align trusts and estates similarly, we didn't feel it was appropriate to go so far as the probate code [does] when we're working with an estate," she explained. Therefore, what was deemed to be a reasonable timeframe was proposed in the current version of SB 298. 2:19:14 PM REPRESENTATIVE GARA, in noting that Section 6 allows [45] days to file a claim and Section 7, unless changed, allows two years to do so, asked what the difference is between the claims referred to in each section. MS. CHAPMAN explained that for those claims wherein the court is used to formally approve the accounting, then the 60-day notice applies. Under the current law, she continued, when relying on just the general statute of limitations and it's an interim report, then a two-year statute of limitations applies. The proposal is to reduce this to a six-month period so there won't be a distinction between an interim report and a final report. REPRESENTATIVE said he is uncomfortable reducing the amount of time that a beneficiary has to file a claim against a trustee. He opined that the two-year period addressed in Section 7 is very consistent with most statute of limitations and thus whittling the period down to six months is of concern, adding that he doesn't want to diminish the rights of beneficiaries solely to maintain a competitive edge with other states. MS. CHAPMAN explained that in comparing trusts and estate claims to personal injury claims, which have a two-year statute of limitations, the former are "generally not subject to any of those limitation periods because they are equitable in nature." She said that it is important to look at the history of the statute. Prior to the 2003 Act, there were two limitation periods: a six-month period if a final account was provided to the beneficiary, and a three-year period if there had been a lack of full disclosure. In the legislation of 2003, the intent was to eliminate the distinction between an interim report and a final report. She explained that the reason it's referred to as a "report" instead of an "accounting" is because the latter has specific legal definitions of what an actual accounting is. MS. CHAPMAN relayed that given that the beneficiary is provided information about the trust, the intent was to ensure that there was a limitation period that was the same regardless of whether it was "while the trust was still going on or while it was a final report terminating the relationship." The legislation that was passed out in 2003, however, did include a distinction between interim reports and final reports which, she opined, causes significant confusion. In returning to a six-month period, she said, "We are looking to protect beneficiaries ... to ensure that when we transfer assets out of trusts, we do so with some certainty to the beneficiaries." She relayed that the return to a six-month period now includes additional requirements for the trustee to follow, and provides "very clear language to the beneficiary of what their rights are" as well as notifying them of the length of the limitation period. [Representative Anderson returned the gavel to Chair McGuire.] MS. CHAPMAN noted that should a trustee fail to do either of "these," then he/she would no longer have the benefit of the shortened statute of limitations - it would revert to the three- year period. She again expressed her belief that having two separate statute of limitations for an interim report and a final report causes confusion. 2:25:54 PM REPRESENTATIVE GARA recalled past efforts to [shorten] the statute of limitations and said that he is still "uncomfortable reducing the amount of time somebody has to claim that a trustee has charged too much money [and] mishandled the trust" especially in what he characterized as delicate and trying circumstances. MS. CHAPMAN reiterated that having two different time periods causes confusion to beneficiaries. She suggested, therefore, that a six-month statute of limitations be required for any report and that beneficiaries be notified of the length of this time period. REPRESENTATIVE GARA surmised that most beneficiaries have never had a prior trust and that notice is given each time beneficiaries receive an interim report as to what any filing deadlines are. MS. CHAPMAN again reiterated that having two statute of limitations is confusing and could cause individuals to wonder what the actual statute of limitations is, particularly when receiving more than one report. One of the things that [attorneys] try to do with estates and trusts is to provide certainty to beneficiaries to ensure that further claims will not be made on those assets once distributed. Furthermore, she informed the committee, should a trustee be later accused of mishandling the estate and the court determines that the trustee is not at fault, that trustee is entitled reimbursement of legal fees from that trust. In response to a question, she relayed that no part of the bill is retroactive. 2:31:32 PM REPRESENTATIVE GARA made a motion to adopt Amendment 2, labeled 24-LS1113\X.1, Bannister, 4/7/06, which read: Page 4, lines 2 - 4: Delete "within [24 MONTHS AFTER RECEIPT OF THE REPORT IF IT IS AN INTERIM REPORT OR WITHIN] six months after receipt of the report [IF IT IS A FINAL REPORT]," Insert ", if the claim is related to a monetary benefit for the trustee, within 24 months after receipt of the report if it is an interim report or [WITHIN] six months after receipt of the report if it is a final report, or, for other claims, within six months after receipt of the report," Page 4, line 14, following "BEGUN": Insert ", IF THE CLAIM IS RELATED TO A MONETARY BENEFIT FOR THE TRUSTEE, WITHIN 24 MONTHS AFTER YOU RECEIVE THIS REPORT IF THIS REPORT IS AN INTERIM REPORT OR SIX MONTHS AFTER YOU RECEIVE THIS REPORT IF THIS REPORT IS A FINAL REPORT, OR, FOR OTHER CLAIMS," Page 7, line 28: Delete all material. Renumber the following bill sections accordingly. REPRESENTATIVE ANDERSON objected. REPRESENTATIVE GARA explained that Amendment 2 would change the statute of limitations to a two-year period - one, he opined, that a beneficiary faced with challenges should have. He said the two-year period should be retained "when it involves a claim against the trustee for monetary benefits the trustee should or shouldn't have received." REPRESENTATIVE GRUENBERG opined that this discussion involves three different issues: what the statute of limitations should be, whether there should be two different statutes of limitations, and the effects of possible claims made by trustees for reimbursement by the beneficiaries. He said he interpreted Ms. Chapman's main argument to be that it's very confusing to have two different statutes of limitations. Representative Gruenberg suggested that Representative Gara might consider one single statute of limitation and that Ms. Chapman could provide input as to what that limitation might be. As for the third issue, Representative Gruenberg suggested that language be added to the bill to prevent any possible harm to the beneficiary, perhaps even requiring something like that a bond be maintained for the period of the statute of limitations. This bond, he said, would only be paid to the amount of the trustee's legal fees and costs and "basically make it easier ... for the beneficiaries to pay those costs in that unlikely event - either that or retaining a portion of the trust for that [purpose]." 2:35:23 PM MS. CHAPMAN, addressing Representative Gruenberg's suggestion of maintaining a bond, informed the committee that many of the [beneficiaries] in these situations either don't have the wherewithal to post a bond or the commercial bonds are too difficult and costly to obtain. REPRESENTATIVE GRUENBERG mentioned that there is a court rule that specifically says that a person can file with the court the amount of his or her worth and then the court must approve a bond for that amount. MS. CHAPMAN expressed her belief that in the context of a trust and a distribution, it makes sense to ask beneficiaries to post bonds. She said she understands concerns about trustee fees; however, when terminating a trust, and given the fiduciary relationship between the trustee and the beneficiary, it is hard to have a law requiring that a beneficiary post a bond in order to receive his or her distribution. CHAIR McGUIRE, referring to Representative Gruenberg's suggestions on revising the statute of limitations, asked Ms. Chapman if she would support a different period of time other than the six-month period she recommended. MS. CHAPMAN maintained her belief that the six-month period is appropriate. 2:38:37 PM A roll call vote was taken. Representatives Gara and Gruenberg voted in favor of Amendment 2. Representatives Kott, Anderson, McGuire, and Wilson voted against it. Therefore, Amendment 2 failed by a vote of 2-4. REPRESENTATIVE GRUENBERG, referring to Section 6, lines 22 and 26, asked Ms. Chapman whether the changes to the number of days "makes [the bill] conform to the probate code." MS. CHAPMAN said that it actually allows more time than does the probate code, which allows 14 days for any hearing. 2:39:52 PM REPRESENTATIVE ANDERSON moved to report HCS CSSB 298(L&C), as amended, out of committee with individual recommendations and zero fiscal notes. There being no objection, HCS CSSB 298(JUD) was reported from the House Judiciary Standing Committee.
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