Legislature(1997 - 1998)
04/30/1998 01:25 PM JUD
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
HB 196 - WILLS, TRUSTS, & OTHER TRANSFERS Number 1930 CHAIRMAN GREEN announced the next item on the agenda was HB 196, "An Act relating to wills, intestacy, nonprobate transfers, and trusts; and amending Rule 24, Alaska Rules of Civil Procedure." He asked Dave Pree, Legislative Assistant to Representative Joe Ryan, to come before the committee to present HB 196. Number 1954 DAVE PREE, Legislative Assistant to Representative Joe Ryan, Alaska State Legislature, said there had been some changes made since the last committee hearing on HB 196. REPRESENTATIVE PORTER made a motion to adopt CSHB 196, Version H as the working draft. There being no objection, that version was before the committee. Number 1997 REPRESENTATIVE JOE RYAN, Sponsor of HB 196, said the concerns voiced by the Department of Law and Representative Porter at an earlier meeting have been addressed in the proposed committee substitute. CHAIRMAN GREEN asked for a brief explanation of the changes made in the proposed committee substitute. REPRESENTATIVE PORTER directed the committee's attention to page 9, line 27, and said the language had been reworded. He explained that in a situation of a trust with joint trustees, there are some activities of the trust that require unanimous trustees' sign off. If an individual trustee within the group is dissatisfied with a particular activity, this language allows that person to indicate in writing to the other trustees and the beneficiary - or the representative if the beneficiary is incompetent - that they do not wish to be held liable for this particular action. That being done, the trustee can sign for the activity because of the requirement for unanimous trustee consent. Number 2063 REPRESENTATIVE RYAN explained that Assistant Attorney General, Mary Ellen Beardsley of the Department of Law believed the statutory reference in Section 2 of the previous committee substitute was in error, so the correct statute is reflected in the proposed committee substitute. Additionally, she had suggested the term "uniform" be changed to "Alaska" in Section 11. He said one of the problems he's discovered is there actually is no Uniform (indisc.) Investor Act. There are seven drafts which have been made by the Uniform Law Commission and this is one of the drafts that has been used by seven other states. So, it's a uniform, nonuniform law. Lawyers seem to understand that, but the general public doesn't. So, to avoid confusion, it was changed to the Alaska Trust Act. Number 2130 REPRESENTATIVE PORTER clarified there had been concern that the members of this committee might have believed this was "the" Uniform Trust Act of the law commissioners. He said it isn't because there isn't one. There may be one next year. REPRESENTATIVE PORTER continued that on page 12 of the original bill, there was a provision that said, "Notwithstanding any other section of law, a trustee may lease, buy or sell, including a lease, purchase or a sale in the establishment of a trust service office, from or to the trust the trustee represents as a trustee if specifically authorized to make that in the trust instrument." He said basically, that is self-dealing and general common law in this area disallows self-dealing, so it was deleted. REPRESENTATIVE CROFT asked if it had been deleted in (h)? REPRESENTATIVE PORTER confirmed it had been deleted. He pointed out the next change on page 13, line 19, and said this section covers mingled funds and funds are not supposed to be mingled. This addresses a situation where funds have been mingled and a person is trying to straighten it out and the sequence of effect on the trust. Language was added on line 19, "Nothing in this section is intended to authorize the mingling of trust funds". Number 2313 REPRESENTATIVE PORTER directed the committee's attention to Section 13.36.180 on page 15 and said there had been a provision which attempted to hold a trustee not liable for a tort that was committed if it was committed incident to the kind of business activity in which the trustee was properly engaged. The language was deleted because it seemed to be an inconsistent statement. REPRESENTATIVE CROFT said, "So, it had been you're not liable if it's the kind of business you're supposed to be doing, but you may be ..." REPRESENTATIVE BERKOWITZ interjected, "You're not liable if you do something wrong that you weren't supposed to be doing, but thought you should have been able to." REPRESENTATIVE PORTER added, "Yes, but you were engaged in the business you were supposed to be engaged in. But if it was a tort, it was a wrong. I mean it doesn't make any difference whether you engage in the right business or the wrong business, a tort is a tort." REPRESENTATIVE RYAN interjected the tort would go against the trust versus the individual if it can be shown the individual wasn't guilty of personal fault. REPRESENTATIVE RYAN stated, "I would say that - the way I understand it - not being an estate planning attorney or a trustee - is that I would think that the action, the way I read this is, did I intentionally set out to commit this tort or was this inadvertent in the course of business. There is a liability that hangs out - now where do we hang the liability? Is it hung on the trust or is it hung on the individual who had a personal fault in committing the act? My understanding of this change makes it if it wasn't a personal fault, then you don't have a liability." Number 2435 REPRESENTATIVE CROFT noted that in both drafts, the language in that section begins, "A trustee who has incurred personal liability for a tort committed in the administration of the trust ...." which appeared to him to jump through all the hoops of trust law. There is some reason to attach personal liability for the tort, so .... TAPE 98-78, SIDE B Number 0001 REPRESENTATIVE CROFT ... "rather than say trust liability, as an entity. So, once you've gone through all those, it does seem to me that there should be only limited exoneration and I take it Representative Porter takes out that exoneration because they've already been found to be personally liable. To that extent, that change makes sense. And the new section does end, '... or if the trustee or officer was not guilty of personal fault in incurring the liability' - I don't know that's necessary given you already said 'has incurred personal liability for a tort', but it does clarify it." Number 0037 REPRESENTATIVE PORTER explained the next change is in Section (e), page 14, which again excluded the personal liability of the trustee, but he didn't think the previous language gave enough notice to the beneficiary (indisc.). He noted the language in the proposed committee substitute was not what he had requested. He added, "They had a two-tiered method of titling their signature; one as trustee and the other one not individually liable - oh, they just had and not individually. If they signed it as trustee, this was prima facie evidence to exclude the trustee from personal liability and if it was signed as trustee and not individually, that would constitute irrebuttable evidence on intent to exclude the trustee from personal liability. And I didn't think that gave enough notice, so I suggested that it be changed to 'and not individually liable' so that that anyone whose money it was recognized that that's what that signature meant. But they have added, unfortunately, the words that I took out in there, so I would move an amendment, if you're willing, on page 15, line 1, I would delete the first four words and the first ten words of line 2." He clarified the amendment would delete the last four words on line 1, and the first ten words of line 2 of page 15. CHAIRMAN GREEN asked if there was objection to the amendment? Number 0158 REPRESENTATIVE JAMES asked Representative Porter to clarify the reason for the amendment. REPRESENTATIVE PORTER explained that if a trustee is going to place him or herself in a position where there's irrefutable evidence they are not personally liable, they should communicate that to the benefactor and the settler. REPRESENTATIVE JAMES said her concern, having operated as a trustee, she had to indicate "as trustee" after her signature to eliminate the chance of being liable. REPRESENTATIVE PORTER remarked he wants it perfectly clear "if there's refutable evidence." He said he would not have a problem if the committee wanted to add "as trustee" back in there, but make it back to the prima facie evidence. Number 0225 REPRESENTATIVE RYAN commented that under the Alaska Trust Act, it's a complete gifting and the settler is really no longer involved unless retaining a beneficial interest. Once it's settled and the gift tax is paid, it's a complete gifting and the settler has no control over it any longer. As a beneficial interest, the settler still has no control; it's discretionary on the part of the trustee's part whether to give them a distribution or not. So, really the only people this would apply to is the beneficiaries. Number 0263 REPRESENTATIVE CROFT stated he was uncomfortable with the "irrebuttable" nature of the language. REPRESENTATIVE PORTER said, "I wouldn't be opposed to going back to the way that Representative James described it was fine with me. (Indisc.) signing as trustee is prima facie evidence of no personal liability, which (indisc.) short of any evidence to the contrary." Number 0373 REPRESENTATIVE PORTER said, "I would move an amendment that on -- okay, it's this one -- line 1, page 15, all of the first line be deleted except the last word and on line 2, 'irrebuttable' be deleted and 'prima facie' be inserted. So, how it would read then is 'In a contract action under this section, the addition of the words' -- I'm sorry, we'll have to keep words -- the first word of that line we'll have to keep -- 'addition of the words as trustee after the signature of a trustee to a contract constitutes prima facie evidence of an intent to exclude the trustee from personal liability." Number 0466 REPRESENTATIVE PORTER noted this was a friendly amendment to his proposed amendment. CHAIRMAN GREEN asked if there was objection? Hearing none, Amendment 1 was adopted. REPRESENTATIVE ROKEBERG referred to lines 11 - 14 and asked why a person who commits a tort while managing a trust, could be reimbursed with respect to the extent of the increase in the value of whatever act committed. REPRESENTATIVE RYAN said he really didn't know. Number 0530 REPRESENTATIVE ROKEBERG referred to line 16 and asked why a charitable trust is treated differently. NOTE: Answer is indiscernible due to numerous individuals speaking at the same time. Number 0583 REPRESENTATIVE CROFT asked if someone could give him an example of "when someone commits a tort as a trustee, that increases the value of the trust property" as indicated on page 15, line 11. REPRESENTATIVE PORTER recalled the logic is that it was a tortuous act that got the money in there in the first place, so to the extent that whoever was harmed needs the money back, would sue the trustee and the trustee can take that money and give it back to the person that was harmed. The trustee shouldn't benefit from the illegal act. REPRESENTATIVE CROFT said that makes sense, but it doesn't specifically say, "when sued by the wrong party and found liable, the trustee can take the increase from the trust and then give it back." There could be a potential situation where the trustee does a tort, isn't caught for it, and says, "I did a great tort for you and I want the money from it." REPRESENTATIVE PORTER interjected that it's the amount of gain as a result of the tort to the trust. REPRESENTATIVE CROFT said, "Right. I could, as the tortfeasor trustee, I could -- there's no requirement here that I have to have been sued and owed the money for the wrongful gain yet." REPRESENTATIVE RYAN cited an example of an individual engaged in an inside trading deal and the trust benefitted from it. REPRESENTATIVE CROFT stated, "That may be the more logical example. So in that then, I as the trustee - inside trade - the trust gets the advantage and I say now, 'I want the increase in that stock value' and I get it." This just gets it back to the trustee, not back to the injured party. Number 0763 REPRESENTATIVE RYAN said, "The way I understand it, the trust basically increases in value, but as the trustee, if I have to be liable for that increase, that's not particularly fair because the money is in the trust - it could be recovered from the corpus of the trust to pay back, so why do you nail me?" REPRESENTATIVE CROFT suggested the language in (b) should be more strongly tied to the language in (a). There was further discussion regarding suggested language changes. REPRESENTATIVE ROKEBERG pointed out the problem is the language doesn't address what the trustee does with the money. REPRESENTATIVE JAMES said she thought it was purely and simply a measurement. She doesn't read this as the money going out of the trust. REPRESENTATIVE RYAN said, "Well, you delineate the rules under which the trustee operates - liability or not liability - it'd be up to the court to decide that particular action and affect to remedy would it not? REPRESENTATIVE ROKEBERG said it reads "reimbursement to the trustee" though. Number 1000 REPRESENTATIVE JAMES said, "If I might. It does say reimbursement for the liability out of the trust funds if the trustee has paid the claim. Then (indisc.) back, but otherwise in (b) it says that if the trustee commits a tort, increases the dollar of the trust property, the trustee is entitled to exoneration or reimbursement with respect to the tort to the extent of the increase in value. She interprets that to mean the trustee is relieved of that much, but the money still stays in the trust, so she didn't understand the discussion of taking the money out of the trust to pay something when nothing is getting paid, but rather getting relieved of having to pay it because it's already there as a result of the tort. Number 1035 REPRESENTATIVE CROFT believed there was somewhat of a point in what Representative James' comment if it didn't say "or reimbursement". He added, "If it said entitled to exoneration, relief and that's the measure idea you're putting in, but it says 'or reimbursement', so I am entitled to reimbursement from the trust - it's not just a measure - it's an entitlement of payment." REPRESENTATIVE JAMES interjected, "Because you've incurred personal liability." REPRESENTATIVE CROFT replied, "Right, well, if I add that section that says that, but right now it just says if I committed a tort." Number 1067 CHAIRMAN GREEN asked the sponsor to explain the intent. REPRESENTATIVE RYAN said, "We're saying that he increases the value of the trust property, he's entitled to be exonerated or reimbursed with respect to the tort to the extent of the increase in value even though he otherwise wouldn't be entitled, but because there is a gain - the tort - he has a responsibility for his liability for the increase in value and so the increase in value is determined -- I want to phrase this right - I don't want to get the words wrong -- exoneration, reimbursement to the extent of the increase in value even though he otherwise wouldn't be entitled because if he hadn't increased the value, he would be personally responsible for whatever that value was. But since there was the increase in value and that can be recovered, then he doesn't have to bear it - the increase in value bears it - the trust bears it." CHAIRMAN GREEN said his concern was that somehow it's going through the trustee. Number 1140 STEVE NOEY, Title and Affiliation Unknown, said, "AS 13.36.180 - this is just a statement or a definition - provides that a trustee who has incurred a personal liability for a tort committed in the administration of a trust, is entitled to exoneration from the trust if the tort was a common incident of the kind of business the trust was engaged in or if the tort was not a common incident then the trustee was not personally liable. I think that the reason for this is, let's say that Wally Hickel had in his will that his hotel, the Captain Cook, would go into trust upon his death. It goes into trust upon his death and the trustee automatically becomes liable and the administrator of the hotel. There's a slip and fall on the property during the time that the trustee is taking possession of it and tried to put new management on the property or whatever's happening - it's a common incident type thing. But I think what they're saying is the trustee didn't cause this thing - it was a common incident like a slip and fall or a car accident if they had a delivery truck, and so in that the trustee would not be liable." REPRESENTATIVE PORTER said that wouldn't increase the value of the trust. CHAIRMAN GREEN suggested that may be true for a tort where the trustee didn't do something to actually enhance the value of the trust - this is just an operational sort of situation. MR. NOEY agreed that's an operational thing. Number 1266 MR. PREE said, "If the trustee, in the course of managing this trust, commits a tort, there may be a question of standing with respect to the trust and the person who committed the tort. The trustee who committed the tort would be -- increased the value of the trust -- held liable for such trust increase and because of the standing issue, they would be able to recover -- or he would be exonerated by the trust for whatever that increase was to address the standing question that whoever the tortfeasor was has against the trustee or the person who committed the tort." REPRESENTATIVE ROKEBERG said he thought Mr. Noey had some notes on subsection (b). Number 1333 UNIDENTIFIED SPEAKER: "He just says a simple example may illustrate the application of AS 13.36.180 if we assume that a person who operates a delivery service as a sole proprietor, dies and appoints a trustee who decides to continue the business on a temporary basis until it can be sold. While making a delivery, an employee of the business is negligent and injures a third party. The third party sues the trustee and not the trust. And since the employee was negligent, the trustee will be liable under the doctrine of respondent superior - don't ask me what that means - even though the trustee was not personally at fault. AS 13.36.180 would allow the trustee to be reimbursed by the trust in this instance because the delivery is a common incident, et cetera." REPRESENTATIVE PORTER noted that pertains to subsection (a). He continued, "And to (b), Mr. Chairman, let me just read it once what we've gotten - if there's any questions about it, before we move it. But what we've changed here is taking out 'commits a tort that' - the fourth, fifth, sixth and seven word and then adding the rest of it so it would read, 'If a trustee has incurred personal liability for a tort committed in the administration of the trust and that tort increases the value of the trust property, the trustee is entitled to exoneration or reimbursement with respect to the tort to the extent of the increase in value even though the trustee would not otherwise be entitled to exoneration or reimbursement.'" REPRESENTATIVE ROKEBERG asked, "Well, if there's a claim from a third party, would there not be an increase - it'd be offset?" REPRESENTATIVE PORTER remarked, "That's why we're saying, 'as incurred personal liability for a tort committed in the administration', so there is a bill against him personally. And in the situation where that act actually increased the value of the trust, that bill can be paid to the extent of that increase and anything over that would have to be paid by the .... Which puts the money that was unlawfully gained back." Number 1525 REPRESENTATIVE PORTER said, "I've only got one more and basically it's the same kind of a thing that we're dealing with in another section that cut out a whole bunch of middle ground and just said if you've got personal liability -- if you're not personally liable, you're not liable. That business activity stuff that we took out once before, we took out a second time in another section on page 16." He asked for a moment to find to locate the exact location. Number 1611 REPRESENTATIVE ROKEBERG said in reading ahead to the language on page 16, "if the trust is created by writing or by oral statement to the trustee at the time of the creation of trust that the trust is created orally" seems rather unusual. Number 1661 MR. JARDELL said his understanding is that some states allow oral wills and because these trusts are going to be nationwide, there could be a situation of a will that was orally created in one state that incorporated a trust in it and "if you could prove it up under the laws of that state, then it would be a valid (indisc.)." REPRESENTATIVE RYAN noted there are a lot of existing trusts that can be moved from the jurisdictions in which they were created to Alaska and would be administered under Alaskan law. He added, "And (indisc.) substantial trusts because of the advantages we have. That's why we're (indisc.-coughing) this business up here - from offshore jurisdictions and so forth, bringing back on shore. In fact, Senator Murkowski and Representative Young and Stevens are going to be talked to about creating an exemption trying to get some of this money back on shore by making an exemption in the law for -- you don't get penalized if you bring it back within a certain period of time. And then we hope to have that brought here into Alaska (indisc.) northern jurisdiction, so that's basically what this is. So, it covers any trust made in other jurisdictions and .... CHAIRMAN GREEN remarked that he was aware of oral wills because they're fairly immediate, but he had never heard of an oral trust which carries on and on. MR. JARDELL said, "My understanding would be that if you create an oral will and within that will, your will creates a trust." CHAIRMAN GREEN observed that he could have a written trust, but if it's orally given to another person, the whole thing is oral. MR. JARDELL replied, "My understanding would be that the whole thing is oral. If I'm out in the woods and I get shot and I turn to Representative Croft and say, 'This is my will - I have $5 million - take it, invest it, give my kids $100,000 when they turn 18 and until they die', in some states that may be a valid will and a valid trust arrangement ...." REPRESENTATIVE ROKEBERG said hopefully, the statutes provide that's not an allowable trust agreement in the state of Alaska. REPRESENTATIVE RYAN remarked that if they're imported to Alaska, they would fall under what was HB 101 last year. CHAIRMAN GREEN said, "Well, what I think you're trying to get at is that you could actually say that we could incorporate from out of state, but that we would not be able to able to create oral wills within the state." REPRESENTATIVE PORTER found the location he had been looking for and said, "The only other thing is that the changes that were made on page 15 on line -- well, the changes that I described that I made to 180 were also made to 185 that if evolved that tort for a business - 'tort of a common incident in the kind of business activity in which the trustee was properly engaged' - we took that that out because I don't know what that meant - it wasn't a tort if you were properly engaged in the business, but .... that was removed from 180 and 185. That's the rest of the changes." Number 1982 REPRESENTATIVE ROKEBERG referred to Section 13.36.170, Unenforceable oral trust created by deed, and said he wasn't sure why deeds of trust were included in this legislation. CHAIRMAN GREEN noted that HB 196 would be held in committee for further discussion.