Legislature(2003 - 2004)
03/11/2004 01:30 PM Senate L&C
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
SB 344-TRUSTS/ESTATES/PROPERTY TRANSFERS
CHAIR CON BUNDE announced SB 344 to be up for consideration.
MR. BRIAN HOVE, staff to Senator Ralph Seekins, sponsor,
explained the bill as follows:
A vital characteristic of any highly developed
economy is the ease with which financial resources
flow from one market to another. The magnet-like
attraction between money and the market that offers
the most advantageous terms at a particular moment in
time is, perhaps, best demonstrated within the
financial services industry itself.
Over the years, the Alaskan banking industry has
attracted funds to our state as a result of a
particular niche we have successfully developed in an
obscure corner of the industry known as trust and
estate services. Much of this success can be
attributed to the foresight demonstrated by the Alaska
State Legislature.
Since 1997, the Legislature has passed numerous bills
effectively making Alaska a premier jurisdiction for
this financial specialty. Just last year, SB 87
adopted a more recent version of the Uniform Principal
and Income Act. HB 212 updated other portions of
Alaska's trust laws. Both were signed into law last
summer.
While SB 344 may not be as far reaching, it
accomplishes much the same purpose. It does this by
making a host of small technical revisions to current
statutes. It updates the provisions relating to
virtual representation, it clarifies when a trustee
can be relieved of liability and it adds provisions,
which other jurisdictions have already adopted.
Keeping our trust statutes current has had a direct
positive impact on our state's economy. Over the
years, these periodic revisions have helped to bring
hundreds of millions of dollars of trust assets into
the state and added tens of millions of dollars to
local bank deposits. Furthermore, it has increased
business activity for attorneys, accountants, life
insurance agents and brokerage firms. This, in turn,
creates jobs.
Necessity, ingenuity and routine advances in
technology collaborate on a daily basis to reinvent
the world of financial products and services. To date,
Alaska has successfully staked out a place in this
world through our contemporary set of trust and estate
laws. SB 344 seeks to preserve our position in what
amounts to a highly fluid marketplace unrestricted by
geographic boundaries. It seems reasonable to keep the
money flowing in this direction.
CHAIR BUNDE said he understands that current trust laws in
Alaska generate some income for the state and asked if he could
speculate how fine-tuning the trust would advance the earnings
for the state.
MR. HOVE replied that would be difficult, but if we don't keep
up with the Joneses in this instance, we will be going backwards
and the money the state has attracted so far will start to go in
the other direction.
MS. BETH CHAPMAN, Attorney, Faulkner & Banfield, said she has
practiced in the estate and trust area for the last 16 years.
She supported SB 344.
I believe SB 344 is necessary to ensure that Alaska
remains the standard bearer for trust and estate law.
Since 1997, when the Legislature passed the first
trust act, several other states have tried to take the
business from Alaska and keep that business, in
particular, Delaware. Many of these changes are
designed to ensure that Alaska is the state where
folks will want to put their trust assets, both
residents and non-residents.
Several of the ways that the law is improved is SB 344
makes technical amendments to the recently enacted
Uniform Principal and Income Act. It also expands the
scope of a doctrine called virtual representation.
What this really does is ensures that we are able to
give notice to classes of beneficiaries in an
efficient manner, access the courts in an efficient
and cost effective manner, to ensure that the trust
laws are fulfilled in that the testator's trust is, in
fact, upheld in the courts.
Also and, probably what I consider to be one of the
most important aspects of the bill, is section 4
dealing with the limitation on proceedings against
trustees. Under current law, we do not have a statute
of limitations for causes of actions against a trustee
until a final account is rendered on the trust. A
final account would normally not be rendered until the
trust relationship has been terminated. Alaska now has
trusts that can last in perpetuity. Therefore, we
could have a very long time before any proceeding
could be brought. An example would be where we have a
trust that's been in existence for 15 years. Yearly
reports have been given to the beneficiaries, but 14
years later, a beneficiary decides that something that
occurred in year one is now a problem. They can now
seek and bring a cause of action in the court and go
back that many years. They are only barred after a
final account. This would change that law so that a
beneficiary is required to bring a cause of action
within a period of time after they have received
notice that would give them enough information to
recognize that there was a cause of action and, also,
that the trustee is required to notify the beneficiary
of that time limit. So, it's very protective of the
beneficiaries, as well. It's not just a bar, but it's
also notification provision.
CHAIR BUNDE asked if it would be an oversimplification to say
that under the current system the statute of limitations would
run until the trust is cashed out and in some cases that might
not be in any foreseeable future.
MS. CHAPMAN replied that would not be an oversimplification and
could happen if the trustee isn't changed prior to the time the
trust is terminated.
We believe that can lead to costly and complex
litigation that should be avoided if we had a statute
of limitations that notified beneficiaries of their
rights.
The other part of the bill that's important is that it
expands the spendthrift protection for other types of
trust that are commonly used. Last year, the
Legislature adopted a trust bill that did expand the
spendthrift protection to certain types of charitable
trusts. This would expand it to include other types of
trusts that are recognized under federal income tax
law, most notably a qualified personal residence trust
and what is known as a grantor retained annuity trust.
CHAIR BUNDE asked her to define a spendthrift provision.
MS. CHAPMAN explained:
A spendthrift provision is a provision in a trust that
limits the creditor's ability to access the trust
assets until they are distributed to the beneficiary
or to the grantor. Alaska has a spendthrift provision
that allows an individual to set up a trust with his
or her own assets and retain certain discretionary
rights to those funds, but until the funds are
actually distributed by an independent trustee, those
funds cannot be attached by a creditor. A qualified
personal residence trust is generally used to transfer
a home from an older generation to a younger
generation and right now, by placing it into a trust,
it would have no spendthrift protection until we amend
the law that would allow the individuals to continue
to live there and until the trust is terminated and
those assets are distributed out, which does happen
generally after a short period of time, those assets
would be protected from creditors.
In essence, I believe the Alaska Legislature has shown
foresight in adopting the laws, has helped the Alaska
economy by bringing trust funds to the state and that
SB 344 is another bill that will continue the trend in
keeping Alaska at the forefront of states with trust
laws.
CHAIR BUNDE asked if she knew what revenue the current trust law
has brought to the state.
MS. CHAPMAN replied that she didn't know.
SENATOR HOLLIS FRENCH asked:
Regarding section (2) pleadings and the parties who
are bound by orders and notice regarding proceedings
involving trusts - as I look at this section, it
strikes me that you're broadening the scope of
proceedings that might bind others - that is they no
longer have to be formal proceedings. They don't have
to even be judicially supervised settlements; they
could be non-judicial proceedings and settlements and
is that, at first blush, what is happening in this
section?
MS. CHAPMAN replied, "Yes, it is."
SENATOR FRENCH asked her to flesh out the folks who could be
affected by a non-judicial settlement of a trust and start with
section (c) and go on through.
MS. CHAPMAN explained:
The individual starting at section (c) that would be
bound - and it's important to note that all the
individuals who we've bound can only be bound to the
extent that there is no conflict of interest - and we
are required by the prior section of the code to
inform the court - and in a non-judicial if we were
going to enforce a non-judicial settlement of the
individuals we are attempting to bind. So, in section
(c), a minor for example, can be bound by another
person so long as there is substantially identical
interest. Similarly, an incapacitated person or a
person whose identity or location is unknown or not
ascertainable.
SENATOR FRENCH asked what substantially identical interest boils
down to.
MS. CHAPMAN answered:
Somebody would have substantially identical interests,
so that whatever they would receive from the trust
would not be affected by what would happen to the
other person's interest. For example, somebody who has
an interest in the income, but not in the principal,
they would not necessarily have the substantially
identical interests. If we affect the principal, make
a distribution, we would be reducing how much is
available to pay the income. So, they are interests
that would not be affected by a ruling. So, the effect
would be the same to the interests. It doesn't
necessarily mean the same amount, but the same nature
of the interest. Probably the best example is moving
on to section (d) where we talk about class. It says
many times we will have a gift that will indicate it
will be to my spouse for his or her life and then to
my children after the death of the spouse and you may
have children who at the time the trust was
established are alive, you may have children who are
not yet born.
Number (d) indicates that if we serve obviously, the
people who are alive, that that does bind those after
born children. So, we don't have to go back in and
relitigate the issue. Similarly in (e), if we have an
interest that passes to the surviving spouse and to
persons who are heirs of the living person, that would
receive it in the future for the future interests,
that so long as we serve the living people, that will
bind those who are not yet in existence.
[Section](f) is where we're talking about a happening
of a future event. That's sort of the key to all of
these new additions - the (d) through (f). We're
talking about binding a class of individuals who will
receive it in the future. So, we may not even know who
all the members of our class are going to be whether
some people may have died, some people may have been
added to the class. So, in (e) what we're discussing
is if we have a class of individuals who are going to
receive it in the future, and then we have another
class after that, we have perpetual trusts, that will
say to my children, after the death of the last child,
to my grandchildren, after the death of the last
grandchild on and on and on in perpetuity. Once we
bind the first class, then it's going to bind all the
other classes along the way so that each time we have
a new class coming into existence we do not have to go
back to court or a non-judicial settlement to resolve
the issue.
Most of the issues where we're going to see this
statute used is issues involving interpretation. The
courts have the authority to require us to serve
anybody that the court feels should be served. So, at
any time, when we disclose to the court who we intend
to give notice to and what provision we're using of
this law to give substitute notice, the court could
say no, that's not acceptable; you need to go out and
serve. The court has the ultimate jurisdiction.
CHAIR BUNDE asked if you can put things in an Alaskan trust and
still have limited access to them.
MS. CHAPMAN replied that is correct.
CHAIR BUNDE asked if that had passed the muster of courts.
MS. CHAPMAN replied that the statute that was passed in 1997 has
not been looked at by a court, yet.
MR. STEVE GREER, Atty., said he has been involved in the group
that has worked on this legislation for years. "It is a very
good piece of legislation." He urged its passage.
MR. BLATTMACHR, President, Alaska Trust, supported SB 344. "It
will be beneficial for Alaska residents and for businesses and
for the State of Alaska."
TAPE 04-23, SIDE A
2:58
SENATOR BETTYE DAVIS moved to pass SB 344 from committee with
individual recommendations.
CHAIR BUNDE asked for a roll call vote. Senators Hollis French,
Ralph Seekins, Bettye Davis and Chair Con Bunde voted yea; and
SB 344 moved from committee. There being no further business to
come before the committee, he adjourned the meeting at 3:00 p.m.
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