Legislature(2017 - 2018)BELTZ 105 (TSBldg)
02/21/2018 01:30 PM Senate JUDICIARY
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| Audio | Topic |
|---|---|
| Start | |
| HB208 | |
| SB151 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 151 | TELECONFERENCED | |
| += | HB 208 | TELECONFERENCED | |
HB 208-TRUSTS; COMM PROP TRUSTS; POWERS OF APPT
2:07:16 PM
CHAIR COGHILL announced the consideration of HB 208.
2:08:56 PM
ANDREW EVENS, Staff, Representative DeLena Johnson, Alaska State
Legislature, Juneau, Alaska, recapped that the Alaska Trust Act
passed in 1997, broadening the flexibility of managing trusts.
At that time Alaska was among the top three jurisdictions for
placing trusts, but it has since slipped to number eight. The
primary purpose of the bill is to restore Alaska to its former
position as a premiere situs for trusts. HB 208 updates,
clarifies, and increases the flexibility of trust law while
maintaining the current protections.
He listed the things HB 208 does for Alaska. First, it promotes
increased investment in Alaska and opportunities for growth in
the financial services sector. Second, it expands an industry
that is not natural resource dependent by attracting non-
resident trust business. Third, trust administration creates
higher paying jobs for accountants, attorneys, and other trust
professionals. Finally, it is revenue positive. Registration
fees and life insurance premium taxes from trusts are expected
to bring in between $7 million and $12 million annually.
2:12:16 PM
BETH CHAPMAN, Attorney, Faulkner Banfield PC, Juneau, Alaska,
stated that she has practiced in the trust and estates area of
law for the past 30 years. She said HB 208 modernizes provisions
in Title 13 (the Uniform Probate Code (UPC)) and clarifies areas
where questions have arisen. She opined that this bill continues
to improve the law and decreases the potential for litigation.
CHAIR COGHILL asked Mr. Evans to go through the sectional
analysis focusing on the changes, the section in which it
appears, and the reason for the change.
MR. EVANS provided the following sectional review of HB 208.
Section 1 adds new subsections (b) through (f) to AS 13.12.704
to clarify the powers of appointment.
Subsection (b) states that a power of appointment will
be considered to be held as a nonfiduciary power of
appointment unless granted to a trustee or other
fiduciary as a trustee or other fiduciary.
He deferred to Ms. Chapman for explanation.
MS. CHAPMAN explained that a power of appointment might give a
beneficiary the right to decide who gets the assets when a trust
ends. This subsection clarifies that this is an individual right
that is not subject to review by the court or anybody else. This
protects beneficiaries and avoids disputes going forward.
2:15:56 PM
SENATOR WIELECHOWSKI joined the committee.
MR. EVANS said Section 2 amends AS 13.36.109 relating to
specific powers of trustees. It gives a trustee the power to buy
liability insurance to protect the trustee against beneficiaries
of the trust.
CHAIR COGHILL observed that the largest change appears on page
4, lines 4-5.
MS. CHAPMAN said this clarifies that when trustees purchase
insurance for the trust it can include liability insurance for
the trustee for claims brought by beneficiaries.
MR. EVANS read:
Section 3 adds a subsection to AS 13.36.109 (trustee's
specific powers). Allows a trustee to charge against
trust property the cost incurred to perform an action
authorized by (a) of the section.
This essentially allows the trust to pay for activities that are
necessary to the trust.
He said Sections 4-22 relate to the increased flexibility of
decanting.
2:18:35 PM
SENATOR WIELECHOWSKI referenced the communication from Shaftel
Law Offices, P.C. that expressed concern with HB 208. He read
the following that Mr. Shaftel articulated about Section 4.
Under the bill, an unlimited authorized trustee (who
may just be an individual who is a friend of a
beneficiary) can appoint an existing trust's assets to
a new trust just for the benefit of one current
beneficiary, and for the benefit of future
beneficiaries who are not even beneficiaries of the
invaded trust (see Section 4 of the bill).
CHAIR COGHILL asked Mr. Shaftel to speak to his concerns.
2:20:05 PM
DAVID G. SHAFTEL, Attorney, Shaftel Law Offices, P.C.,
Anchorage, Alaska, stated that he has been practicing in the
estate planning area of law since the 1980s and is a member of a
group of attorneys and trust officers who have worked with the
legislature to improve Alaska's trust and estate laws since the
late 1990s. He participated in drafting the existing decanting
provision and is opposed to those provisions in HB 208 as
currently drafted.
He said decanting is a useful tool for modifying trust
provisions, but it must strike a balance between allowing needed
changes and protecting the settlors' intent. He maintained that
the current draft of the proposed decanting provisions is
significantly out of balance and does not have adequate
safeguards. He warned that these provisions would apply to all
trusts that now exist in Alaska.
MR. SHAFTEL said the key premise in HB 208 is that very broad
new powers are given to any trustee who is not a settlor or a
beneficiary of the trust. If a manipulating beneficiary can get
a friendly trustee appointed, then this friendly trustee can
really do just about anything to the dispositive provisions of
the trust. He provided a hypothetical example of a wife with two
children from a prior marriage. She leaves her assets in trust
for her new husband, and at his death the assets are to go to
her two children. The husband names a friend as trustee and
under HB 208 the trustee can direct that after the husband's
death the wife's assets go to his children, not hers. He said
this can be done under Section 4 of the bill.
He provided a second hypothetical example where a couple created
wills and a trust for the benefit of their three children. The
couple gave the trustee directions to hold the assets in trust
until a certain age but to make distributions according to an
ascertainable standard for health, education, maintenance, and
support. If one child is manipulative and has the power to
change trustees and he names a friend who will accommodate his
wishes. Under HB 208, that trustee then can change the standard
for health, education, maintenance, and support to one of
absolute discretion and distribute assets as he/she sees fit.
The trustee could give the manipulative child the power to
appoint the assets to anyone, not necessarily a family member.
He provided a third hypothetical example that applies to both
irrevocable and revocable trusts. A person is using a revocable
trust instead of a will as the center piece of their estate
planning and they become incapacitated. The trustee can appoint
a friendly trustee who can change the whole dispositive plan,
even though the person who created the will is still alive.
MR. SHAFTEL maintained that under HB 208, a person who wants to
manipulate a trust to change the dispositive plan, simply has to
get a friendly trustee appointed. Many existing trusts in Alaska
have a child or spouse named as trustee and they have the right
to name a successor. As long as the trustee is not the settlor
or beneficiary, that trustee has very broad powers. Section 20
of HB 208 provides that only one beneficiary needs to be
notified if a trust is decanted. Further, the fiduciary duty
under HB 208 is limited to the best interest of one beneficiary.
Section 14 of the bill eliminates language which refers to and
asks for consideration of the settlor's intent.
MR. SHAFTEL advised that he submitted a memo and attached an
email exchange he had with the Reporter for the Uniform Trust
Decanting Act. She was commenting on the Senate companion to HB
408 and was very critical of it for the reasons previously
mentioned. He also pointed out that the bill has not been
reviewed and approved by the Alaska Bar Association's Estate
Planning Section.
MR. SHAFTEL summarized that the decanting provisions are not yet
ready to be enacted until safeguards are added. Notice should be
given to all beneficiaries when changes are made, and the
fiduciary duty should be broadened so that the trustee has duty
to all the beneficiaries. The fiduciary duties should be stated
in the bill so that someone who accepts this role will be
advised as to their responsibilities. Finally, there are some
confusing and ambiguous provisions in Section 7 and Section
4(b).
2:31:45 PM
CHAIR COGHILL asked Mr. Evans who would like to respond to Mr.
Shaftel's testimony.
MR. EVANS suggested Ms. Chapman respond.
2:32:40 PM
MS. CHAPMAN said Section 4 addresses the exercise of power of
appointment by an authorized trustee, which is a power trustees
have under existing law. Right now, a trustee who has the
discretion could distribute principal from a trust to one
beneficiary or they could distribute it equally. What HB 208
does is clarify that a trustee who has the discretion can take
the assets from a trust and put them in a new trust for the
current and future benefit of one or more of the current
beneficiaries and to the exclusion of the others. This has been
the law. What the bill changes is that future beneficiaries may
by added. This is not unusual.
MS. CHAPMAN said the protections in this bill are that the
assets remain within a legal entity and the trustee continues to
be liable to all the beneficiaries until he/she provides an
accounting of his/her actions. She described the concern that
notice of a distribution to a new trust may be to just one
beneficiary as unfounded.
MS. CHAPMAN said she finds that HB 208 balances the ability to
be flexible to respond to changed circumstances with protecting
beneficiaries. She hasn't seen a case of abuse of the current
statute and her firm uses it frequently. In many circumstances
it's to help families protect their children, particularly when
they have a substance abuse problem, for example. Instead, the
assets can be put into a trust that continues to protect the
assets. She said the bill is drafted to strike a balance and all
the points of view have been considered.
CHAIR COGHILL asked how the Uniform Law factored in this change.
MS. CHAPMAN clarified that this is not based on the Uniform Law.
Alaska passed the decanting statute many years before the
Uniform Law came into existence. She said the question of
whether the Uniform Law is too restrictive or if it's protective
can't be answered because people have different opinions. She
opined that having some notice requirements and always holding a
trustee liable until every qualified beneficiary has been given
an accounting is the most protective way to move forward and
allow for flexibility.
SENATOR WIELECHOWSKI asked if the Alaska Bar Association has
weighed in on the bill.
MS. CHAPMAN said she didn't know the Alaska Bar Association
policy on weighing in on legislation. She said she has a lot of
respect for Mr. Shaftel, but they disagree on this point. She
has used this law many times and it has always been to the
benefit of families moving forward without going to court. She
described the bill as very balanced.
CHAIR COGHILL asked Ms. O'Connor to provide her testify.
2:42:40 PM
ABIGAIL O'CONNOR, Attorney, Holland & Knight LLP, Anchorage,
Alaska, said she testified on HB 208 several days ago and was
reiterating her support today. She said her perspective as a
trust and estates attorney who practices in both Alaska and
Florida is that Florida's decanting statute is so restrictive
it's not used very often. If a Florida trust needs to be
decanted, it is easier, although more expensive, to move the
situs to Alaska. She agreed with Ms. Chapman that Alaska already
has statutory safeguards regarding trust decanting and opined
that someone who wants to be nefarious with a trust will do it
regardless of the statute. It's a problem, but current law
provides that a trustee can appoint all the assets to one
beneficiary and the other beneficiaries won't find out until
they receive an accounting. "I don't know that we can have a
statute that prevents every bad actor from creating every
conceivable kind of bad act."
2:46:41 PM
CHAIR COGHILL held HB 208 in committee.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 208 - Written Testimony - Shaftel.pdf |
SJUD 2/21/2018 1:30:00 PM |
HB 208 |