Legislature(1997 - 1998)

04/30/1998 01:25 PM JUD

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
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.                                                            

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