Legislature(1997 - 1998)
03/06/1998 01:07 PM House JUD
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 196 - WILLS, TRUSTS, & OTHER TRANSFERS Number 460 CHAIRMAN GREEN announced the committee would hear HB 196, "An Act relating to wills, intestacy, nonprobate transfers, and trusts; and amending Rule 24, Alaska Rules of Civil Procedure," sponsored by Representative Ryan. Number 545 REPRESENTATIVE JOE RYAN came before the committee to explain the legislation. He noted there is a proposed committee substitute, Version B. He read the following statement into the record: "The bill makes a number of important improvements to Alaska's estate and trust laws. Sections 1 to 8, 18 and 19 of the bill changes Alaska law to permit a person who is domiciled outside of Alaska to select Alaska as their jurisdiction for the probate of his or her estate. This provision should bring significant business to the state. In other jurisdictions they give the attorneys a percentage of the estate as fee. Alaska doesn't, you only get the time you spend and it will keep people from necessarily having to go to another state to probate the will. It can be probated here in Alaska. "Sections 9 and 10 of the bill allow a person to limit the liability of a trustee in his or her trust when more than one trustee is serving. The person could provide only the trustee who exercises a power will be held liable for its actions and that the other trustees who did not participate in the exercise of the power would not be held liable for that (indisc.) other trustee. This provision will encourage trustees in Alaska to work with other trustees of the same trust. "The Uniform Trust Act included in Section 11 which clarifies many issues involving the administration of trusts in Alaska. "Section 12 protects an Alaska trustee who in good faith defends an Alaska trust from the claims of a creditor who seeks to set the trust aside. If the trustee acts in good faith, then the trustee gets a first lien on all trust assets for payment of its fees, costs and attorneys' fees. Delaware has adopted a similar provision to protect its trustees. "Section 14 clarifies that a trust created in another state or country can be moved to Alaska even though the trust was settled before the Alaska Trust Act was passed last year. "The Uniform Trustee's Powers Act is enacted in Section 16. Alaska does not have a statutory provision that sets out the powers of a trustee. These statutory powers would supplement the powers set forth in a trust agreement. "A number of miscellaneous provisions are included elsewhere in the bill. Section 15 allows a person to include a penalty clause in his or her trust. Section 17 clarifies the accounting of bond premiums and discounts. Section 20 amends AS 34.40.110(d) to be consistent with the Uniform Fraudulent Transfers Act. Section 21 precludes an action by creditors of the grantor of the trust against those who assist in the creation of the trust. "The bill will improve our estate and trust laws and will make Alaska's laws more favorable to our residents. In addition, the bill will make our laws more attractive to people outside of Alaska who are considering Alaska for the administration of their estates and trusts." REPRESENTATIVE RYAN noted that Richard Thwaites, a practicing attorney and the immediate past chairman of the state planning section of the Alaska Bar, would explain the technical aspects of the bill. Number 716 RICHARD THWAITES, Attorney, came before the committee to answer questions. REPRESENTATIVE ROKEBERG said he would like to know what the bill does. MR. THWAITES said, "We are looking at Alaska, because of this new trust act, as a destination jurisdiction for this. Basically, what has happened in many of the national meetings everybody is now very attentive to Alaska as being the location to go for estate planning. This takes that one step further in that let's say that one of your relatives died in Kansas or some other jurisdiction because a defibrillator didn't work. There was no other relative down there and no reason for you, as the person who is doing the administration of the estate, to go down there. This bill provides that you can actually do that administration here in Alaska in your home or residence. And you just need to apply the Kansas law to the Kansas real estate or whatever that might be. And so it permits the jurisdiction of the court to extend to those types of probates. And even in our probate code, it is discretionary on the person to bring the action here. So in all of the other states it's likewise discretionary and they don't have to have a probate in that state if no assets are required. This also defers to that other jurisdiction which means if there is somebody down there who says, 'No, we want to have the probate there,' then you're going to have to defer to that jurisdiction. So if the Kansas court did come up and say they would have a priority, so this is only in a situation where no one is objecting. Typically, that would be the younger generation here wanting to do it there." MR. THWAITES continued, "Further than that, it actually goes a little further and it allows perhaps someone setting up in an Alaska trust to also, as part of their state plan, suggest that Alaska would be the designated jurisdiction for the administration of their estate, say where there is a (indisc.) provision in their will that whatever assets are still in their estate pours over to their Alaska trust. (Indisc.) omit that administration." MR. THWAITES explained that California requires many hearings and a definitive process to go through the probate process. It also sets up statutory fees on a percentage basis of the estate. He said that as a result, many states have living trusts as the primary form of estate planning for the purpose of avoiding probate in those jurisdictions. He said Maine, Kentucky, Wisconsin, Alaska and Idaho are five states which do not have percentage fees. For that reason, it is often very convenient to go into the Alaska court where we have a nonintervention system. This means that no one ever has to attend a hearing or go to court, you merely hand the petition to the court. The court then authorizes a personal representative to act as long as the personal representative swears they will abide by all the probate rules. Mr. Thwaites said after distributions have occurred and after the minimum requirements have been met with the Department of Revenue, et cetera, there is a closing letter that they have to issue, when those things are done, the personal representative files a sworn statement closing the estate. That is called an informal administration of an estate which is fairly common to the 14 jurisdictions that have the uniform probate code. Mr. Thwaites said this, in essence, extends this option to all of the citizens of the United States which means that the lawyers, certified public accountants, trust officers, et cetera, might get additional business as a result of that. The state of Alaska would receive the additional fees for the filings, et cetera, that is also required. MR. THWAITES pointed out that as a result of the Alaska Trust Act, one slight bonus has happened. In many of the state jurisdictions, the professors and so forth in those states are now recommending to their perspective lawyers that when considering the Alaska as jurisdiction for either trusts or estates, if they really want to make it solid they won't transfer some of their assets to Alaska, they will transfer a majority of their assets to Alaska. From a conservative standpoint, that means that you are solidly within both the situs meaning you've designated Alaska as a jurisdiction and the minority opinion which is substantial contact. There are two opinions on how to determine whether Alaska is the appropriate jurisdiction or not. By placing a majority of your assets that are in trust with the Alaska administrators and so forth, you have met both tests. Mr. Thwaites noted that the Oregon Bar, in a January letter to their members, has given a description about how to set these up. In their recommendation they suggest you ought to really have substantial contacts with Alaska, as well as declaring a situs of the jurisdiction. This is a further enhancement of that permitting, in the probate code a portion of the statute, designation of Alaska as the jurisdiction in the will as well as in the trust. It doesn't override the other. Number 1095 CHAIRMAN GREEN said if you are going to transfer the assets of real property, that would be sold in the other state and be subject to any taxations. He referred money or jewelry and asked if there would be a taxation before they would be removed from that jurisdiction to Alaska jurisdiction. Number 1131 MR. THWAITES explained that under the current common law of the United States, the tangible personal property passes in the state of which the person is domiciled. If someone in Oregon had tangible personal property, Oregon would impose a tax on that tangible personal property. However, if they had placed that property in an Alaska trust, the domicile of that property is then Alaska. Then the portion of the estate tax return concerning the tangible personal property, even though it's a Florida resident, would be paid to the Alaska Department of Revenue under the trust. REPRESENTATIVE BERKOWITZ asked who is opposed to the bill and why. Number 1225 MR. THWAITES responded that it would be the other jurisdictions that want to impose or protect their right to tax and levy against those assets. There is a certain right of the citizens of the United States, under the U.S. Constitution, to be able to freely transfer these things back and forth. He explained that Delaware's reaction to our last trust bill was that within 19 days after Alaska had passed legislation, they introduced and passed a similar statute. They even cited the Alaska statute as what they were trying to copy. He said, "They kind of messed it up because there were some other things that were placed in there that didn't make it work for tax reasons and they're attempting to straighten those out this years. But I think that Delaware and South Dakota are likewise trying to capitalize on being a destination situs, if you will, for those kinds of assets and it only affects the personality, it doesn't affect the real estate." REPRESENTATIVE BERKOWITZ asked if there is any Alaskan opposition. MR. THWAITES responded that he isn't aware of any. Number 1259 CHAIRMAN GREEN asked if HB 196 is an addendum to the legislation passed last year. He asked if HB 196 covers intestation. MR. THWAITES explained the legislation last year covered the trust law. There are many parts to HB 196. The main part of the bill, as far as probate goes, is the probate portion. Mr. Thwaites referred to the section regarding the trustees that Representation Ryan spoke about does affect the corporate fiduciaries or individual fiduciaries that might be involved. He said, "For example, if your bother-in-law and sister-in-law acted as a trustee along with an Alaska bank or someone else, they wouldn't be liable for the bank's actions and the bank wouldn't be liable for their actions. So it makes it more acceptable for those corporate fiduciaries to accept that work. Presently, in most jurisdictions the corporate fiduciaries -- if they're going to have some liability, they're concern about, 'If I have a little bit of the liability, I'm going to have all the liability.' And they're less than willing to go ahead and co-administer a fund and this will limit that exposure and encourage co-administration so that you have a family member involved, perhaps with the corporate fiduciary and not having the liability pass back and forth one to the other." Number 1330 REPRESENTATIVE CROFT said there are some portions of the bill that are uniform laws or come from uniform reforms. There are some that merely relate to transferability of trust properties. He said those seem to him to be acceptable because he tends to trust the uniform drafters. A transfer type of operation seems to him to be substantively neutral. It just allows them to bring the trust property to Alaska or it expedites the ways they can do that. Representative Croft stated he is more interested in the substantive changes. He said, "Aside from the ones that we've have adopted out of uniform laws and aside from things that simply relate to how someone would transfer their trust property up here, what are the major substantive changes to our trust law? And in particular, I'm concerned about the penalty clause in Section 15 -- an explanation of why that's good public policy." MR. THWAITES said he would defer the question to Richard Hompesch who has spent a considerable amount of time working on the statute. Number 1427 REPRESENTATIVE PORTER referred to Section 19 and said he doesn't understand the term "or otherwise." He read, "A cause of action or claim for relief with respect to a fraudulent transfer under (b)(1)," which describes a "fraudulent transfer" of this section "or otherwise is extinguished unless the action is brought." MR. THWAITES explained he thinks it is meant to broaden this limitation to correspond to the statute that was adopted under our trust act. He noted there is also a 4-year, 1-year statute. This makes it consistent and it expands that definition to cover the broader terminologies. Mr. Thwaites said he believes Mr. Hompesch can speak to that. He said basically, it brings the existing statute in compliance with trust statute. Mr. Thwaites referred to the Uniform Trust Act that is referred to in the bill and said there was a comment by the Attorney General's Office last year about that because the uniform commissioners are talking about modifying the Uniform Act. He said, "What we have here was the existing Uniform Act that was in existence and is currently the law for the state of Alaska, not the new revised version that they haven't adopted. We also adopted the 1993 version of the Uniform Probate Code, and so there are many versions of that and there are lots of variations. And while ours is called the 'Uniform Probate Code,' we did not adopt all the provisions out of it, and there are provisions for variations there." Mr. Thwaites said that whenever we have a uniform act, he believes the connotation is that we are substantially similar and our concept is the same as the Uniform Act, but every state has a little variation, one way or the other, from those acts. Number 1594 BOB MANLEY, Attorney, testified via teleconference from Anchorage. He noted he is primarily involved in estate planning. He urged the committee to adopt the proposed committee substitute language as it is an improvement of the Alaska Trust Act. It basically generates greater (indisc.) action for people disposing of their property. The Alaska Trust Act that was passed last year has received a lot of national commentary. Mr. Manley referred to the Heckerly (ph) Institute in Florida and said one of the (indisc.) involved "North to The Future, The Alaska Trust," which establishes Alaska as a situs for money management. He said it is important to keep current and modify with the current trends. MR. MANLEY referred to Representative Porter having a question about the Fraudulent Transfers Act and said, "What this provision regarding the 4-year and 1-year statute of limitations does is adopt exactly the language or almost exactly the language of the Uniform Fraudulent Transfers Act which is that the cause of action is extinguished after that 4-year or 1-year period run. And previously, we simply provided that the cause of action I believe expired or at least was no longer brought. So it was procedural rather than substance and the change, (1) the patterns that's closer to that - Uniform Fraudulent Transfer statute of limitation; and second, it makes it more likely that a court outside of Alaska will recognize the validity of our statute of limitations and that's Section 19." MR. MANLEY continued, "The other thing that I want to point out and urge you to consider favorably is the new Section 20 which provides that if a fraudulent conveyance action is brought and it's acceptable -- in other words, if somebody was trying to cheat their creditor and they knew who their creditors were and they hid the money in the Alaska trust, the Alaska court and any other courts are going to approve invasion of that. However, if because of the expiration of the statute of limitations are otherwise the Alaska courts do not view it as a fraudulent conveyance. If it's, as Mr. Thwaites mentioned, one of those future - future (indisc.) creditors in the future. What this does is it prevents the creditor from going in the back door and instead of getting to the trust assets, suing the trustee for conspiracy to commit a fraudulent conveyance or the equivalent which might have a different statute of limitations. So simply this makes it better or safer for individuals and institutions (indisc.) trustees. I think if you follow the local bank stocks you'll see that NBA (National Bank of Alaska) has had a tremendous runoff in the last year, North Rim has been shooting up. We've got a new Alaska trust company. There are some new financial institutions also that looking at Alaska seriously for establishing bases of operation and this kind of improvement in the law makes it more likely that we can continue this good clean new industry of money management for Alaska. Thank you." Number 1805 REPRESENTATIVE JAMES made a motion to adopt the proposed committee substitute for HB 196, Version B, Bannister, 3/4/98. There being no objection, the proposed committee substitute for HB 196 was before the committee. Number 1817 JOHNNY GRAMES testified via teleconference from Anchorage. He said, "I am not here to talk about my own case. But as a parent, I'm -- that you're setting up Alaskans (indisc.) to get policed by predators operating under these laws that are set up by the judiciary branch of government and lobbied by these lying lawyers. And I don't know how else to warn the people what's happening. And Mr. Thwaites is a crook and he sold out my sons who are beneficiary to my mother's estate - our family estate which -- my father came here in 1915 and built up and now the lawyers and bankers are going to be able to steel the estate for the next 22 years. Now the reason you don't hear about this is because the court system is totally politicized and corrupted and I'm not able to appeal -- not able to file a due process appeal so I (indisc.) block from access to the court to petition the government for (indisc.) which is a constitutional right so that nobody knows about this. And you will not hear it with the Alaska Commission on Judicial Conduct with the probate master and the judges...." CHAIRMAN GREEN interjected and asked Mr. Grames to conclude his testimony. MR. GRAMES continued, "Also, Mr. Thwaites appointed a guardian ad litem over my son and I am the father and the trustee and he lives with me. And the court system went along with it. So a trustee has power over my son and we have no privacy and we are unable to protect him from the guardian and from court control and that's Mr. Thwaites that you're depending on." Number 1954 RICHARD HOMPESCH, Attorney, testified via teleconference from Fairbanks. He said that Representative Croft asked about Section 15. Mr. Hompesch said, "The policy behind Section 15, which is the penalty provision, goes as follows: If I want to set up a trust, Section 15 clarifies that I can have a provision in the trust that says if any of my children who are beneficiaries of the trust sue the trustee, the trustee can deduct its attorneys fees from that child's share. And many times we have - estate planners have clients who have difficult children who are very prone to frivolous litigation. And as you know rule 82, which is our attorneys fee provision, rarely provides (indisc.) for a board of attorneys fees when litigation is filed that's frivolous. So this type of penalty provision would allow a person setting up a trust to charge their beneficiary, who filed the frivolous litigation, for the costs. Without such a provision, all the beneficiaries of the trust would have to share the legal fees for defending the frivolous litigation. And I figure it's good policy to allow such a clause under Alaska law because what the Community Property Act and other provisions of our new laws, this penalty provision is completely optional. If a person chooses to (indisc.) or include a penalty provision in their trust, they may. It's provided, it's allowed under Alaska law. Most people may choose not to. So as a matter of freedom of choice, I think it's a good policy for Alaska. Unless there are other questions, I'd like to thank you and urge you to pass House Bill 196. REPRESENTATIVE CROFT said that he didn't see in Section 15 that the lawsuit had to be frivolous. It said, "even if probably cause existed instituting the proceedings." He said these can valid but losing suits, not just frivolous suits. MR. HOMPESCH stated, "Yes, the penalty provision merely says that if you want to provide a penalty provision, it could say that even if the beneficiary claim is meritorious that the penalty provision could still apply. Now I'm not here to say that such a penalty provision should be included. I think most of my clients would probably say -- you know they would prefer a penalty provision that would apply if the litigation was frivolous. But it's important to remember that most of the trusts that I think Mr. Thwaites, Mr. Manley, myself and other attorneys in Alaska are doing today have trust protector clauses. A trust protector clause allows someone - some trusted advisor in the family to remove the trustee without cause. So It would seem to me that this penalty provision would encourage the resolution of disputes through the trust protector and not through our court system." CHAIRMAN GREEN thanked Mr. Hompesch for his testimony. He indicated the HB 196 would be held for further consideration.
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