Legislature(1999 - 2000)
02/21/2000 01:19 PM House JUD
| Audio | Topic |
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE JUDICIARY STANDING COMMITTEE
February 21, 2000
1:19 p.m.
MEMBERS PRESENT
Representative Pete Kott, Chairman
Representative Joe Green
Representative Norman Rokeberg
Representative Jeannette James
Representative Lisa Murkowski
MEMBERS ABSENT
Representative Eric Croft
Representative Beth Kerttula
COMMITTEE CALENDAR
SPONSOR SUBSTITUTE FOR HOUSE BILL NO. 275
"An Act relating to the Uniform Probate Code, including trusts and
governing instruments; relating to trustees; relating to
underproductive trust property; and relating to conveyances of real
property and interests in real property by or to trusts."
- MOVED CSSSHB 275(JUD) OUT OF COMMITTEE
HOUSE BILL NO. 354
"An Act relating to criminal sexual inducement of a minor, to
distribution of pornography to minors, and to sex offenses."
- HEARD AND HELD
PREVIOUS ACTION
BILL: HB 275
SHORT TITLE: UNIFORM PROBATE CODE/TRANSFERS
Jrn-Date Jrn-Page Action
1/10/00 1891 (H) PREFILE RELEASED 1/7/00
1/10/00 1891 (H) READ THE FIRST TIME - REFERRALS
1/10/00 1891 (H) JUD
2/16/00 2207 (H) SPONSOR SUBSTITUTE INTRODUCED
2/16/00 2207 (H) READ THE FIRST TIME - REFERRALS
2/16/00 2207 (H) JUD
2/21/00 (H) JUD AT 1:00 PM CAPITOL 120
BILL: HB 354
SHORT TITLE: SEXUAL INDUCEMENT OF A MINOR/PORNOGRAPHY
Jrn-Date Jrn-Page Action
2/09/00 2146 (H) READ THE FIRST TIME - REFERRALS
2/09/00 2147 (H) JUD, FIN
2/09/00 2147 (H) REFERRED TO JUDICIARY
2/21/00 (H) JUD AT 1:00 PM CAPITOL 120
WITNESS REGISTER
REPRESENTATIVE GENE THERRIAULT
Alaska State Legislature
Capitol Building, Room 511
Juneau, Alaska 99801
POSITION STATEMENT: Sponsor of SSHB 275.
STEPHEN GREER, Attorney at Law
4041 B Street, Suite 205
Anchorage, Alaska 99503
POSITION STATEMENT: Testified in support of SSHB 275 and answered
questions.
DAVID SHAFTEL, Attorney at Law
550 West 7th Avenue, Suite 705
Anchorage, Alaska 99501
POSITION STATEMENT: Testified in support of SSHB 275 and answered
questions.
WILDA RODMAN, Staff
to Representative Gene Therriault
Alaska State Legislature
Capitol Building, Room 511
Juneau, Alaska 99801
POSITION STATEMENT: As sponsor's representative, briefly discussed
amendments to SSHB 275.
MARY ELLEN BEARDSLEY, Assistant Attorney General
Civil Division (Anchorage)
Department of Law
1031 West Fourth Avenue, Suite 200
Anchorage, Alaska 99501-1994
POSITION STATEMENT: Answered questions and offered a technical
correction to SSHB 275.
ANNE CARPENETI, Assistant Attorney General
Criminal Division
Legal Services Section-Juneau
Department of Law
P.O. Box 110300
Juneau, Alaska 99811-0300
POSITION STATEMENT: Answered a question with regard to the legal
interest rate.
GAYLE GARRIGUES, Staff
to Representative Tom Brice
Alaska State Legislature
Capitol Building, Room 426
Juneau, Alaska 99801
POSITION STATEMENT: As sponsor's representative, presented HB 354.
ACTION NARRATIVE
TAPE 00-16, SIDE A
Number 0001
CHAIRMAN PETE KOTT called the House Judiciary Standing Committee
meeting to order at 1:19 p.m. Members present at the call to order
were Representatives Kott, Green, Rokeberg, James and Murkowski.
HB 275 - UNIFORM PROBATE CODE/TRANSFERS
CHAIRMAN KOTT announced that the first item of business would be
SPONSOR SUBSTITUTE FOR HOUSE BILL NO. 275, "An Act relating to the
Uniform Probate Code, including trusts and governing instruments;
relating to trustees; relating to underproductive trust property;
and relating to conveyances of real property and interests in real
property by or to trusts."
Number 0071
REPRESENTATIVE GENE THERRIAULT, Alaska State Legislature, sponsor,
came forward to present the bill. He explained that SSHB 275
proposes a number of changes to the Uniform Probate Code sections
that were adopted nearly unanimously by the legislature a couple of
years before. For the last couple of years, a loose "federation"
of attorneys who deal with estate planning and probate issues in
Alaska have been working on proposed changes to the state statutes,
so Alaska can keep abreast of changes in federal laws and ideas put
forward in other states' statutes.
REPRESENTATIVE THERRIAULT referred members to the sectional
analysis in the written sponsor statement, noting that it includes
examples and cross-references to other states' statutes mirrored in
SSHB 275. He pointed out that a couple of individuals who have
been very involved in SSHB 275 were on teleconference to discuss
technical aspects and provide real-life examples and explanations.
He added that one driving concern for himself is that Alaska
residents be able to avail themselves of all sections of the
Internal Revenue Service (IRS) that would allow them to avoid
having to pay federal income taxes. A number of sections,
therefore, deal with how persons may plan their estates in order to
pass on assets to loved ones without having to pay federal taxes.
Number 0285
REPRESENTATIVE THERRIAULT informed members that along with SSHB 275
were a couple of suggested amendments. The one with his name on it
[1-LS1188\I.1, Bannister, 2/18/00, which later became Amendment 1],
requested by the Department of Law, read:
Page 9, line 15, following "(a)", through line 17:
Delete all material.
Insert "A person, including a trustee, may convey
real property to a trust whether or not a trustee of the
trust is named as a grantee in the instrument of
conveyance. A trustee of a trust may convey real
property from a trust whether or not a trustee of the
trust is named as a grantor in the instrument of
conveyance."
Page 9, line 18:
Delete "or devise"
REPRESENTATIVE THERRIAULT said the second amendment [copy not
provided in packet] just corrects a typographical error.
Number 0345
REPRESENTATIVE GREEN inquired about planned testimony.
REPRESENTATIVE THERRIAULT specified that Steve Greer would walk the
committee through the majority of bill sections but would defer to
another individual with more expertise for two sections. In
addition, Dave Shaftel was online to answer questions.
Number 0388
REPRESENTATIVE MURKOWSKI asked if the Uniform Probate Code is like
the Uniform Commercial Code in that uniformity is sought throughout
the states and individual changes in states are discouraged. She
further asked how it fits as a national uniform code.
REPRESENTATIVE THERRIAULT deferred to testifiers but pointed out
that federal tax codes change all the time. Until there is a new
suggested uniform code to bring all states up to the same level,
states are somewhat free, to his understanding, to deal with
federal changes as they see fit. He noted that testifiers have
participated in national bar association conferences where this has
been discussed.
Number 0502
REPRESENTATIVE ROKEBERG encouraged fellow members to complete their
estate planning, as he himself had recently done. He referred to
the phrase "stated rate" on page 3, line 28, in Section 3. He
asked why that isn't defined in the bill unless it is defined
elsewhere in statute. He voiced his understanding that it is a
change from "legal rate."
REPRESENTATIVE THERRIAULT answered that if he understands the
question correctly, that refers to AS 45.45.010(b), commonly
referred to as the "discount borrowing rate," so that it would be
a floating rate instead of a rate set in statute.
REPRESENTATIVE ROKEBERG pointed out that there isn't a reference to
the other statute there. Recalling that this had been done before,
on trust bills, he asked whether perhaps it is a conforming
amendment.
REPRESENTATIVE THERRIAULT suggested that would be a good question
for the testifiers. He informed the committee that his assistant,
Wilda Rodman, had been working with the gentlemen who were online,
and that he himself had to leave the meeting to attend to other
matters.
Number 0714
STEPHEN GREER, Attorney at Law, testified via teleconference from
Anchorage, first asking whether Bryan Merrell was online.
CHAIRMAN KOTT answered that Mr. Merrell was not online yet. On
teleconference were Dave Shaftel, mentioned previously, and Mary
Ellen Beardsley of the Department of Law.
MR. GREER told members that although dry and complicated, this bill
is important because each provision can produce tax savings for
Alaskans. He believes this legislation is very good and should be
noncontroversial. It is essentially an estate planning bill. Many
provisions originally contemplated for it were dropped after
further study, he noted. All the provisions have been closely
scrutinized and revised over the last year and a half by the
informal committee of estate planning attorneys. In response to
Representative Murkowski's earlier questions, he said very few
provisions of the Uniform Probate Code are being changed in this
bill. Rather, this supplements those to take into account tax
defects of legislation. "We have to put ... these sections in a
certain place, and it just seemed most appropriate that it be put
into the same chapter that the Uniform Probate Code provision is
found," he added.
Number 0860
MR. GREER discussed reasons that these tax-savings provisions are
needed. First, estate planning is highly complicated and takes
years to master because of the complexity of estate and gift tax,
as well as the ever-changing nature. For example, Congress enacted
a so-called generation-skipping tax in 1976; in 1986, after eight
years of confusion, Congress repealed it retroactive to 1976 and
enacted a new generation-skipping regime. At best, enactment of a
tax section can only superficially cover a subject. Practitioners
generally await the promulgation of [U.S. Department of the]
Treasury regulations for guidance. In the generation-skipping tax
area, however, it took that department from 1986 until December of
1995 to issue final regulations. Complicating this, the IRS issues
thousands of rulings each year and there are countless court
decisions, all instrumental to estate tax planning goals. Mr.
Greer stated:
Woe to the person who created a trust five years ago
without having it updated to take into account today's
tax law. Woe to the person who creates their own trust.
... You can go to any bookstore and you'll see countless
do-it-yourself estate planning books. How could a lay
person possibly recognize the dire tax consequence which
the IRS attaches to the use of a word like "comfort,"
when the settlor of a trust is trying to state the manner
in which trust assets should be made available to the
beneficiary?
Woe to the lawyer who doesn't specialized in this area,
who creates a simple will for a client, not realizing the
tax consequences which the simple will produces. And woe
to the lawyer who practices in this area, who drafts a
trust after a statute has been enacted, only to find
regulations which are produced eight years later [put] a
different cloth on prior planning.
The taxpaying provisions in this bill are simply state
law provisions that supplement the interpretation and
administration of a trust so the correct tax result will
be produced. No bill could ever completely ensure the
tax viability of every trust instrument. This bill is
only meant to deal with some of the commonly occurring
problems. And with this bill, fewer Alaskans will be
hurt by a bad tax consequence.
Now, I should say at the outset that most, if not all,
the provisions of this bill are found in other states.
These provisions have been recommended for passage by a
national expert in the estate planning area as models of
good statutes for a state to follow. Reading these
publications, ... our committee of estate planning
attorneys have felt that these statutes would be good
additions to our present statutes, so that bad tax
results won't be produced and, instead, good tax results
will be produced. And by that, I mean less estate taxes
will have to be paid. And so that's the general
underlying philosophy of this bill.
Number 1103
MR. GREER addressed sections of the bill dealing with tax-savings
provisions. He referred to page 3, beginning at line 6, Section 2,
"family-owned business deduction," found under new section AS
13.12.720. In 1997, he explained, Congress passed a law allowing
the owner of a family-owned business to deduct an additional
$625,000 in estate tax; that was to prevent a business having to be
sold to pay the estate tax. The government allows the additional
deduction only if the trust instrument is properly drafted. The
bill, therefore, says the family-owned business deduction will be
allocated to the credit trust in order to take advantage of the
deduction; if allocated to the marital trust, in contrast, the
deduction couldn't be utilized. In itself, this provision allows
almost $300,000 in estate tax savings to a family with a family-
owned business.
MR. GREER turned attention to Section 3, beginning on page 3, line
22, which deals with interest on general pecuniary devises. He
said the first of two aspects to this provision is the tax-savings
aspect. When one distributes assets to a grandchild, the
government imposes a severe 55 percent generation-skipping tax on
top of the estate tax. The government gives each person $1 million
in generation-skipping tax exemptions, but in order to properly
allocate this exemption to a trust, each trust has some highly
technical requirements found in the regulations. One regulation
says interest has to be paid on a pecuniary bequest in accordance
with state law. If it isn't paid, the generation-skipping tax
exemption is negated and the grandchildren are subjected to this
severe tax. Therefore, [Section 3] delays the payment of interest
to two years following the date of a decedent's death; presently,
it is one year from the day that the personal representative is
appointed. This allows more time to settle the estate so that the
generation-skipping exemption can be properly allocated to these
trusts to avoid this adverse tax result.
Number 1312
MR. GREER alluded to Representative Rokeberg's earlier questions
and said the second thing is a change in the interest rate. He
drew attention to AS 45.45.010, subsections (a) and (b), which
read:
(a) The rate of interest in the state is 10.5
percent a year and no more on money after it is due
except as provided in (b) of this section.
(b) Interest may not be charged by express agreement
of the parties in a contract or loan commitment that is
more than five percentage points above the annual rate
charged member banks for advances by the 12th Federal
Reserve District on the day on which the contract or loan
commitment is made. A contract or loan commitment in
which the principal amount exceeds $25,000 is exempt from
the limitation of this subsection.
MR. GREER pointed out that the 10.5 percent in subsection (a),
above, doesn't take into account the changing economic times,
whereas subsection (b) uses a rate not more than five percentage
points above the rate used here, the discount borrowing rate. The
idea is that one will pay interest on a pecuniary bequest. Noting
that many states, including Washington, don't have this provision,
he emphasized that if one is going to pay interest on a pecuniary
bequest, it should be in accordance with the applicable rate at the
time.
MR. GREER further pointed out that where any kind of estate tax
return has to be prepared, it is almost impossible to close out an
estate until about three years after the decedent's death. The
reason is that a personal representative cannot safely distribute
assets until having received a closing letter from the IRS. In the
meantime, the estate stays open. To have interest paid prior to
the estate's closure punishes the residuary devisees, the people
who, by and large, receive the largest part of the estate. "All of
us felt that this was a good provision and would help facilitate
the administration of estates," Mr. Greer added.
Number 1456
MR. GREER reported that Section 4 [page 4] says although interest
doesn't have to be paid until two years following the death of the
decedent, nonetheless income allocated to a marital bequest has to
be paid to the marital share from the date of death to the date of
distribution. This mirrors, almost verbatim, a Virginia statute.
The desire is to save the marital deduction for any property going
to a surviving spouse. This provision ensures that delaying the
payment of interest to other people won't jeopardize the marital
deduction with respect to assets being allocated to the spouse.
MR. GREER explained that Section 5 [beginning on page 4] adds
another provision to AS 13.16.560(a)(4). This is meant to simplify
the administration of a trust so that tax savings can be effected
by its beneficiaries. If, for example, a decedent left two assets
and had two beneficiaries, the two assets don't have to be split in
half, with half of each going to each beneficiary. Instead, if the
assets are of equal value, one asset can go to each beneficiary.
This important tax provision puts into law that a personal
representative has the authority to make these "non-pro rata"
allocations of assets.
Number 1587
MR. GREER told members Section 6 [beginning on page 5] is an
important provision that will prevent many dire consequences. This
provision is found in numerous states, and the heart of it came
from Colorado. Mr. Greer explained that unfortunately many
individuals create their own trusts or hire attorneys who aren't
sophisticated estate planners. Much of what estate planning
attorneys do is mandated by highly technical regulations
promulgated by the Department of the Treasury. If he created a
trust and named his spouse as trustee, for example, he could give
his spouse certain rights to use the trust assets; if those were
only certain limited rights, the assets wouldn't be included in her
estate, to be taxed at her death. However, if he gave her an
unlimited right to use the property of the trust, then this
property would be included in her estate, producing a bad tax
consequence.
MR. GREER highlighted the importance of Section 6 to people doing
their own trusts or hiring attorneys who don't know about the IRS
distinction between "comfort" and "maintenance and support." If
he named his spouse as trustee of the trust discussed previously,
for example, he could give her the right to use the income and
principal to the extent of her "maintenance and support"; those
rights won't rise to the level of ownership. However, as trustee
she couldn't distribute this principal and income to herself for
her own comfort; that word "comfort" would result in all the trust
assets being put into her estate and taxed at her death.
Therefore, this provision is meant for situations where one has
named the beneficiary of a trust as the trustee of the trust. If
one mistakenly uses the word "comfort" in there, this statute will
save the day.
Number 1794
MR. GREER told members Section 7 [beginning on page 7] is another
provision found in numerous states that is meant to save the day.
He noted that the Q-TIP [qualified terminable interest property]
provisions and the generation-skipping tax were enacted in 1982 and
1986, respectively. He pointed out the importance of every trust
having a provision that allows its division, so that one can make
elections to allow allocation of a proper amount for a marital
deduction or for generation-skipping tax exemptions. Mr. Greer
voiced his opinion that with such a provision, the interests of the
beneficiaries aren't being changed at all. He recounted a case in
which he went to court and asked the judge to reform the trust
instrument so his client could make this division authorized by
Department of the Treasury regulations; this cost his client money.
The proposed provision would prevent that, because it says the
trustee can go ahead and divide the trust if that provision is
lacking in the trust instrument.
MR. GREER turned attention to Section 8 [page 8]. He noted that
years ago wills were the going instrument for testamentary
dispositions. Now, perhaps in the vast majority of cases,
revocable trusts are used because they can avoid the cost of a
probate proceeding. Most Uniform Probate Code provisions pertain
to the administration of an estate that follows a will which goes
through probate court; very little is said about how to administer
a trust after a person dies. Many, if not most, of the same
considerations pertain to administration of a trust, however.
Therefore, this provision makes certain distribution provisions
that are applicable to an estate also applicable to the
administration of a revocable trust following the death of a
settlor.
Number 1978
MR. GREER pointed out that Section 9 [beginning on page 8] would
rarely, if ever, be used. It simply defines those individuals in
a trust who, for some reason, may want to elect out of the tax-
savings provisions. He said he can't imagine that circumstance.
MR. GREER informed members that Section 10 [page 9] is another tax-
savings provision. If he creates a trust for his spouse, for
example, and gives his spouse all the income which that trust
produces on an annual basis, that trust will qualify for the
marital deduction, and no estate tax will be imposed with respect
to assets going to that trust. However, that right to receive
income has to be a genuine right. This provision says that a
spouse can require the trustee to make those trust assets
productive of income. Normally, one finds that in a trust
instrument produced by someone technically competent in that area.
However, in those trusts where that provision is not found, the IRS
could challenge the trust, saying that because the spouse doesn't
have the right to require the trustee to produce income, they
aren't receiving all the income that this trust could earn. This
tax-savings provision supplements an otherwise sufficient trust
instrument.
Number 2053
MR. GREER turned attention to the two nontax-savings provisions.
He asked whether Bryan Merrell was online yet; he was not. He
noted that the most significant of these two provisions deals with
the ability of the trust to own real estate. He had wanted that to
be addressed by Mr. Merrell, an Anchorage attorney who serves as
legal counsel to First American Title Company of Alaska, and who
had gone over this provision in depth. Mr. Greer confirmed that
Mary Ellen Beardsley of the Department of Law was online. He told
members that he, Ms. Beardsley and Mr. Merrell had discussed this
provision the previous week.
MR. GREER explained that this provision is simply meant to end
confusion as to whether a trust can own real estate. It has been
the position of some title companies that whenever property is
transferred to a trust, it must state that the property goes to
"John Doe, trustee of the John Doe trust"; if it said the property
goes to "the John Doe trust," there might be an ineffective
transfer of the real estate to the trust. Therefore, this
provision is to clarify that property can be conveyed to the trust
directly, without having to say "John Doe, trustee of the John Doe
trust." Mr. Greer stated his understanding that Mr. Merrell saw
this as a benefit to the title company industry in general and had
shared this proposed statute with his colleagues, who were all in
support of the provision.
Number 2071
MR. GREER reported that the final provision deals with a very
limited circumstance, and is the only provision that changes a
provision of the Uniform Probate Code. When the state originally
enacted the (indisc.) section of the Uniform Probate Code, they
threw out two provisions that were believed not to arrive at the
intent of the average testator; this throws out one additional
provision for the same reason. Mr. Greer posed a situation where
his will leaves a cabin to one child who has a special attachment
and investment in it, with the rest of the property to be
distributed equitably to his remaining children. If Mr. Greer sold
that cabin prior to his own death, that money would fall into the
residuary estate, to be divided equally among all the residuary
devisees, of whom that child probably be one. That is the law now,
as it always has been.
MR. GREER continued. If he had sold his cabin to a third party who
was unable to get a bank loan and cash him out, however, then Mr.
Greer would probably have to take back the promissory note. Under
current law, that note would go to the child mentioned, even though
the intention was to have the child receive the cabin, not the
money. That result seems unfair; in that instance, the note should
be shared by all of the residuary devisees. Mr. Greer concluded by
indicating this bill is just meant to assist Alaska residents by
producing good tax results in trust instruments where they
otherwise might not be found.
Number 2334
REPRESENTATIVE GREEN referred to page 3, Section 3. He asked
whether going from one year to two years may create a longer time
than even a probate in some cases.
MR. GREER said no. It just says that if an estate is unduly
delayed, one doesn't have to start paying interest on the pecuniary
bequests until two years after the decedent's death. He
illustrated the unfairness of having the interest payments be due
earlier, posing an example where he had an estate of $100,000,
leaving $10,000 to one child and the remaining amount to be divided
equally among all the children; he acknowledged that these amounts
are too low. If there is a tax consequence, he explained, that
estate couldn't be safely distributed to anyone until the IRS had
issued its closing letter with respect to the estate. Unless the
final estate tax bill is known, the IRS will look to the personal
representative if he or she makes any distribution; therefore, no
personal representative will ever make a distribution such as the
$10,000 until receiving the closing letter.
MR. GREER continued. He emphasized that how long the estate
remains open depends, essentially, upon the IRS. However, a year
after the personal representative's appointment, that $10,000
devise would start receiving interest at 10.5 percent per year, and
the people who are supposed to receive the remaining $90,000 - who
aren't at fault - would receive far less because the interest
charge would come from that portion. Therefore, this provision
cuts everyone a break by saying interest begins two years after the
date of death. It just extends the time. If the estate is closed
within that time period, everyone is happy and no interest must be
paid at all. It certainly doesn't delay administration of the
estate. It just means this exorbitant interest rate doesn't have
to be paid to this specific devisee. Mr. Greer pointed out that
the federal government had issued regulations in December 1999 in
which they say pecuniary bequests have to share in the income
earned by the estate until the estate is closed [ends mid-speech
because of tape change].
TAPE 00-16, SIDE B
Number 0001
REPRESENTATIVE GREEN asked whether, if it takes two years and there
is a large amount of cash, for example, then no interest will be
returned to any of the recipients.
MR. GREER replied, "No, we're only talking about specific devisees.
After two years, interest starts accruing on that specific bequest.
But it's going to accrue at the interest rate that's there at the
time, not the 10.5 percent - whatever the discount borrowing rate
is at the time."
Number 0035
REPRESENTATIVE ROKEBERG asked whether Mr. Greer had said that
"stated rate" means the discount borrowing rate. He also asked
whether "stated rate" is defined in trust law now, pointing out
that it isn't in a definitions section.
MR. GREER drew attention to AS 45.45.010(b) and to the web page of
the 12th Federal Reserve District, the latter which lists all of
these rates. He affirmed the first question. In response to the
second, he said, "No. In fact, that's why we're defining it here."
He agreed that there isn't a separate definitions section. He read
from Section 3 of the bill, page 3, lines 27 through 31, agreeing
that the whole description is the discount borrowing rate; that
language read:
In this subsection, "stated rate" means the annual rate
charged member banks for advances by the 12th Federal
Reserve District in effect on the first day of the month
that is the 23rd month following the decedent's death,
not counting the month of the decedent's death.
REPRESENTATIVE ROKEBERG asked whether there is any way to modify
that to make it clearer to the public, because it is usually called
the "discount rate," not the "stated rate." He asked whether that
is a term that the Federal Reserve District uses.
MR. GREER said he shares Representative Rokeberg's concern. He
explained that in an effort to eliminate controversy, they had
decided to use the same language presently found under AS
45.45.[010](b). As to why the phrase "discount borrowing rate"
wasn't used back when that was enacted, he couldn't answer.
REPRESENTATIVE ROKEBERG asked whether Mr. Greer would object if the
committee added the word "discount" and retained the word "stated."
He pointed out that "stated rate" is in quotation marks on line 28
because it refers back to line 24.
MR. GREER proposed perhaps saying that the "stated rate" means the
discount borrowing rate.
REPRESENTATIVE ROKEBERG replied, "'Stated rate' or 'discount rate'
means." He asked whether that would be all right with Mr. Greer.
MR. GREER affirmed that.
Number 0167
REPRESENTATIVE ROKEBERG said his second question is one that
Representative Green was pursuing. He expressed some concern that
if there were a general pecuniary devise such as a cash grant in a
person's will, that disposition couldn't be made without the
closing letter from the IRS. He asked whether one could make
dispositions to one's spouse for maintenance and support, however.
MR. GREER said one could always make interim distributions, but one
would never make the final distribution or want to make a
distribution in which the personal representative became subjected
to liability should that representative distribute too much,
leaving too little for the federal government. He pointed out that
this primarily deals with estates of some substantial size, then
said, "You're going to find that the surviving spouse, if they did
any kind of estate planning, is probably going to have half the
assets owned by them in any event, so they can continue on."
REPRESENTATIVE ROKEBERG asked whether typically there aren't trusts
where the devisees are the children or other selected parties, but
that Mr. Greer is saying that any cash grants aren't made until
there is a closing letter.
MR. GREER answered that it could be done if it were a small cash
distribution, because obviously there would be enough money left to
pay the estate tax, even if there were to be some discussion over
exactly what that tax would be.
REPRESENTATIVE ROKEBERG surmised that it would be the trustee's
decision.
MR. GREER affirmed that. If, however, there were a large pecuniary
bequest, and if the trustee felt he or she couldn't safely make a
distribution of that pecuniary bequest until receipt of the IRS
closing letter, then interest isn't going to accrue on it until two
years after the date of the decedent's death. Certainly, nothing
prevents one from making a prior distribution if it is small and
doesn't put the personal representative in a bad position.
Number 0267
REPRESENTATIVE ROKEBERG asked why they couldn't use the date of the
IRS closing letter, rather than the two years [following the death
of the decedent].
MR. GREER said that is very astute, noting that in these
discussions over the last year and half among estate planning
attorneys, that was his own original position. However, because
this is a bill that was reached through consensus, the two-year
provision is what the group all agreed upon.
REPRESENTATIVE ROKEBERG commented that if there were some
controversy or lawsuits attacking the will, he could envision a
much longer period of time before there would be any disposition.
MR. GREER said he wouldn't disagree with any of Representative
Rokeberg's assumptions here. He restated that this is the
consensus arrived at by the group.
REPRESENTATIVE ROKEBERG asked whether the IRS usually is able to
issue a closing letter even if there is litigation underway.
MR. GREER answered that two things can delay the administration of
the estate. One is the IRS, when parties don't agree on the value
of a piece of real estate or a business, for example. Or there
might be the circumstances Representative Rokeberg just alluded to,
where heirs fight over a will's validity or whether it was written
under duress; in that case - even if there is no estate tax
controversy because the estate comes under the threshold for
taxation - the estate could not be closed until the judge said so.
In each instance, the bill says that if there is a pecuniary
bequest, interest doesn't accrue until two years following the date
of the decedent's death; Mr. Greer said that is certainly better
than what is in the law now.
REPRESENTATIVE ROKEBERG responded, "We'll go with the 'discount'
but I'll leave your two years alone."
Number 0413
REPRESENTATIVE GREEN referred to Section 6 and Mr. Greer's
testimony that the word "comfort" causes a problem that
"maintenance and support" alleviates. He said he was told recently
that if by chance the surviving spouse expressed the need for a
Chevrolet, for example, that might be fine, whereas a request for
a Rolls Royce might not be authorized despite the fact that the
term "maintenance and support" had been used.
MR. GREER said that is an interesting question. He pointed out
that these are all found in the [federal] regulations under Section
2041, which defines a general power of appointment. Regulations
say maintenance and support will be determined in the customary
manner of living of that person. He cited examples, saying it
really depends on the situation.
Number 0499
REPRESENTATIVE MURKOWSKI mentioned Sections 6 and 7 of the bill and
the avoidance of unintended consequences, whether or not those are
related to taxes. She asked whether people who really know what
they are doing could use this as a "hammer" in trying to gain some
advantage if there were a dispute over the will.
MR. GREER said that is a good question. He pointed out how well
thought-out this is, and how many revisions this particular statute
has gone through, more than all the rest. He answered that he
can't think of the circumstance where that would be the case.
However, there is a provision in this section that says the
beneficiaries of a trust can elect out of this provision is they so
desire. So they are protected.
REPRESENTATIVE MURKOWSKI questioned the need for Section 9, then,
if they cannot think of anybody who might want to opt out.
MR. GREER responded that it is for that one situation they might
not have envisioned. Noting that this provision has a counterpart
in the Colorado statute from which this came, he added, "For the
most part, you're seeing it here just because it was also there."
Number 0617
REPRESENTATIVE GREEN asked about modifying the trust without
actually dropping it and starting over again.
MR. GREER said that question isn't answered by any of the sections
in this bill. There is another bill, however, where arguably that
problem will be approached. He noted that one may want to create
a trust that gives the spouse as many rights to these as possible
without giving so many rights that it would result in the inclusion
of those assets in the spouse's estate. Someone technically
competent in this area would also give that spouse what is called
a limited power of appointment, which would allow the spouse to
direct where those assets are going to go at his or her own death,
so that person can alter the testamentary disposition and direct
the assets away from a child who happens to be a drug addict, for
example, and towards the other children. Mr. Greer restated that
nothing in this current bill really touches on that problem, one
way or the other.
Number 0752
REPRESENTATIVE ROKEBERG referred to Section 6 on page 5; he
expressed some discomfort with it. He questioned the meaning of
"independent trustee" on line 16, then referred to lines 23 and 24.
He said it seems that the beneficiary of the trust would have that
power to remove the trustee. He asked, "How could you prohibit the
discretionary distribution to pay a legal obligation of the
beneficiary there? ... Or am I reading too much into the language?"
MR. GREER pointed out that there is a lot to this particular
section. He offered to explain a couple of these provisions. Mr.
Greer said he can create a trust, transfer property into the trust,
and name a bank as trustee of the trust, for example, giving the
bank the ability to distribute income and principal, as they see
fit, for the benefit of his children. The bank is an independent
trustee, neither related nor subordinate to Mr. Greer, and not a
beneficiary of the trust.
MR. GREER continued with hypothetical situations. He said if he
creates a trust for the benefit of his [children] and appoints one
of his children as trustee, that child, as trustee, has the ability
to distribute income and principal, as he or she sees fit, for the
benefit of the remaining children. If he gives the children the
ability to remove and replace that child, then the IRS will step in
and say, "Hey, it's just as if you named the children who are
beneficiaries as trustees of this trust, because you can appoint
someone in there, ... as a trustee, who is essentially just a
nominee of yourself. Heck, this is you. And if you have the right
to make unlimited distributions of principal and income to
yourself, well, this property's going to be included in your
estate." Mr. Greer continued:
What we're saying here is this: ... if you have the
ability to remove and replace the trustee, and that
person is related or subordinate to yourself, well, that
person can only make distributions of principal and
income down to you, as a beneficiary, in a manner that's
related to your maintenance and support. And it puts it
on ... an estate tax footing. All this - I mean, this is
just how crazy this area is - ... was changed
dramatically by Revenue Ruling 95-58. Before, the IRS
says that ... it doesn't matter who the trustee was.
Now, they came out with this ruling and said, ... "As
long as you're an independent trustee, we don't care.
But if somebody (indisc.), we continue to care."
Number 0984
REPRESENTATIVE ROKEBERG suggested typically it would be a child
with siblings as the administrator, and in that case, the trust
should not have one of the other children as the trustee.
MR. GREER agreed that is certainly the safe ground.
REPRESENTATIVE ROKEBERG surmised that many trusts appoint one of
the children as the trustee, however.
Number 1012
DAVID SHAFTEL, Attorney at Law, spoke up via teleconference from
Anchorage. He pointed out that typically, if there is a spouse or
child as a trustee, an experienced attorney would include in the
trust an "ascertainable standard," which basically says the trustee
may distribute to the beneficiary income or principal to satisfy
support, maintenance, health or education needs, in order to
maintain the beneficiary's accustomed manner of living. That is
what is almost always done. Mr. Shaftel continued:
In a number of trusts, no standard is put in. But here
we have independent trustees, such as a bank or a family
friend who is not related or subordinate - the way the
IRS code defines that term - to the person involved. So,
there will be trusts that say the trustee has the power
to make distributions as the trustee deems advisable; in
other words, there's no limitation on it at all. But in
those situations, that's where we use independent
trustees.
Now, there are many, many trusts where the spouse will be
the trustee of the trust created by his or her spouse
when the first spouse dies. So if the husband dies and
creates a bypass trust and a marital trust for his wife,
the wife will be the trustee, but we always give her an
ascertainable standard so that those assets won't be
included in her estate and taxed when she dies.
Similarly, there are trusts created for children where
you may ... put the child in the role of being trustee of
his or her own trust, but you limit the child by, again,
an ascertainable standard. Now this "ascertainable
standard" is ... a phrase of art; it's defined in the
regulation. And really it's a very broad standard. ...
It allows distributions for any kind of use or need that
that person has experienced in the past. You're right in
your examples that if you were to exaggerate it horribly,
so that you got into a wasteful situation, then another
beneficiary could come in and go to court and have the
trustee prevented from making distributions in that
fashion. But if distributions are made just according to
... the beneficiary's accustomed manner of living,
there's no problem at all with that.
What we're concerned about here, with this particular
statute, is people who either drafted their own trust or
went to attorneys or other professionals for assistance
in having those trusts drafted, and ... those trusts were
not drafted properly: they put in no standard, and then
they put the family member in as the trustee. And this
cures that problem. And, unfortunately, you see a number
of these situations arise, where either ... general
practitioners have drafted the documents and don't
understand the tax law or people go and get stationery
forms or books from Amazon.com, draft their own documents
and do it inadequately.
So this is a safety net, and that's all is intended, is
a safety net for people who have fallen into ... these
traps of these regulations, not knowing what they were
doing. This safety net prevents all of the assets from
that trust from being included in the spouse's estate and
taxed, or being included in the child's estate and taxed
- ... which is a consequence that nobody wanted - without
really limiting their power. The ascertainable standard
is so broad that ... it allows distributions for anything
that they've really needed in the past.
Number 1252
REPRESENTATIVE ROKEBERG said he thinks he understands this now. He
noted that subsection (b) under Section 6 of the bill prohibits a
grant of total discretion, for example. He mentioned an example
where a trust created 15 years before had granted total discretion
here; he suggested this new provision would override the provisions
of that 15-year-old trust and prevent its being taxed at a higher
rate. He asked whether that is the logic here.
MR. SHAFTEL replied, "Absolutely." He pointed out that a $700,000
trust may not be taxed at all if properly drafted. Without an
ascertainable standard in there, however, the whole trust gets
pulled into the wife's estate when she dies, and about $275,000 of
estate tax will have to be paid, unnecessarily, just because of
that.
REPRESENTATIVE ROKEBERG asked whether Mr. Shaftel would suggest
that there is significant consumer protection in this statute.
MR. SHAFTEL said all of these provisions are designed to provide
Alaskans with these safety nets that other states are providing.
These provisions have come from national conferences and journals,
where they are discussed as necessary provisions to add to state
law to protect residents. Mr. Shaftel urged support for the bill,
which he believes is practical and valuable.
Number 1440
REPRESENTATIVE GREEN asked whether, when this hybrid was put
together, there was review to ensure that wording taken from
another state's statutes didn't conflict with something that Alaska
already has.
MR. GREER answered that this has gone through an amazing amount of
review, not only by the attorneys who drafted it but also by
Legislative [Legal and Research] Services personnel, who were
invaluable in pointing out any possible conflicts. He particularly
extended credit to legislative drafting attorney Teresa Bannister,
as well as Mary Ellen Beardsley of the Department of Law for her
improvements to the section dealing with real estate.
Number 1513
REPRESENTATIVE JAMES remarked that she is impressed with the
changes made but wonders whether the Internet encourages people to
draft their own documents.
MR. SHAFTEL said he couldn't answer that directly regarding the
Internet. However, he can comment that nonprofessionals - who are
neither lawyers nor accountants - do try to market estate planning
tools and "trusts" in Alaska. During the 1970s pipeline-building
era, for example, many of those were seen in the area of so-called
tax shelters. Alaska doesn't have a strong statute dealing with
the unauthorized practice of law but only prevents people from
appearing in court. Nor does Mr. Shaftel believe that the bar
association has authority regarding people who peddle these types
of documents. He agreed the Internet would make it even more
complicated.
MR. GREER spoke up, adding that not so many years ago, a group up
here was marketing trusts; the person promoting these trusts
certainly never went to law school and had no clue about them. Mr.
Greer reported that he himself had filed a complaint with the bar
association; much to his surprise, however, the bar association's
response was that they couldn't do anything unless the person was
actually going to court. He pointed out that many times these
people go to senior centers and dupe senior citizens.
REPRESENTATIVE JAMES recalled her own experience as a tax preparer,
saying she wishes she had a nickel for every hour she spent trying
to help folks with their problems with the IRS. She is very
concerned about this issue because these are vulnerable people.
With the Internet, she believes it will be more prolific.
REPRESENTATIVE ROKEBERG expressed his understanding that the
Division of Banking, Securities and Corporations is drafting
regulations regarding trusts in general right now, focusing mainly
on trust companies. He asked Mr. Shaftel and Mr. Greer whether
their organization has been contacted by that division or whether
they are aware of the regulations.
Number 1812
MR. SHAFTEL answered that they are aware of trust legislation. To
his recollection, several members of his own group, including Bob
Manley (ph) and Doug Blattmachr, are involved, although he cannot
report on their conclusions. As for regulations, he hasn't seen
those and can't say whether those two individuals are involved. He
offered to call Representative Rokeberg's office with that
information.
REPRESENTATIVE ROKEBERG said it is troubling that Mr. Shaftel isn't
aware of what is going on.
MR. SHAFTEL restated that he would check on it and make sure that
they are involved in it.
MR. GREER pointed out that his own focus is mostly as an estate
planning lawyer to his clients, rather in relationship to a trust
company.
Number 1997
CHAIRMAN KOTT asked whether anyone else wished to testify, then
closed public comment in order to take up the proposed amendment.
He asked Mr. Greer and Mr. Shaftel whether they had seen Amendment
1, amending page 9 of SSHB 275.
MR. GREER said it certainly had been discussed with him, although
he hadn't seen it in written form. He surmised that it has to do
with the discussion that occurred between Mary Ellen Beardsley,
Bryan Merrell and himself on Friday, cleaning up the section that
pertains to the ability of a trust to own real estate. He
requested confirmation and suggested perhaps Wilda Rodman [staff to
Representative Therriault] could comment.
CHAIRMAN KOTT confirmed that that is the amendment.
MR. GREER remarked that it is a vast improvement.
Number 2100
WILDA RODMAN, Staff to Representative Gene Therriault, Alaska State
Legislature, stated, "As Mr. Greer mentioned, we did go over with
the Department of Law and reviewed the bill; this was her one
suggestion for how to clean up the language a little bit. Mary
Ellen [Beardsley] would be available to answer your questions on
it."
Number 2119
REPRESENTATIVE GREEN read from proposed Amendment 1 [1-LS1188\I.1,
Bannister, 2/18/00, provided again here for clarity], which stated:
Page 9, line 15, following "(a)", through line 17:
Delete all material.
Insert "A person, including a trustee, may convey
real property to a trust whether or not a trustee of the
trust is named as a grantee in the instrument of
conveyance. A trustee of a trust may convey real
property from a trust whether or not a trustee of the
trust is named as a grantor in the instrument of
conveyance."
Page 9, line 18:
Delete "or devise"
REPRESENTATIVE GREEN referred to the line of the amendment that
says a trustee may convey real property. He asked Ms. Beardsley
whether the trustor would still maintain that authority.
Number 2159
MARY ELLEN BEARDSLEY, Assistant Attorney General, Civil Division
(Anchorage), Department of Law, testified via teleconference from
Anchorage. She stated her understanding that under the proposed
language, once the property is in the trust, only the trustee could
then transfer the property out of the trust. The trustor wouldn't
have the authority to do so.
REPRESENTATIVE GREEN asked why that is good.
MS. BEARDSLEY answered that once the trustor has transferred the
property into the trust, unless that person is the trustee, it is
the trustee who is, in a sense, the owner and controller of that
property; the trustor shouldn't be able to exercise the rights of
the trustee.
Number 2221
MR. GREER added that an analogy would be that if he transferred a
piece of property to his corporation, then only the corporation
could transfer that property to somebody else subsequently. This
trust is a separate entity, and the person responsible for that
entity is the trustee.
REPRESENTATIVE GREEN indicated he was thinking about a situation
where a person might want to do something like in Amendment 1, and
yet not let go of the authority regarding real property.
REPRESENTATIVE ROKEBERG said there could be title in the name of
the estate, not the trustee.
REPRESENTATIVE JAMES suggested it would allow someone to put
something into the trust, leave it for a convenient length of time,
and then take it back out again. She asked why they wouldn't want
to allow that opportunity.
REPRESENTATIVE GREEN alluded to earlier discussion of modifying the
trust to eliminate one of several recipients.
MR. GREER pointed out that a trust can be revocable or irrevocable
- those are the choices when creating a trust. If one creates a
revocable trust, that means someone can put property in the trust
one day and put it right back in one's own name the next day. With
a revocable trust, he could take his condominium and transfer it
into the name of his trust, for example. If he wanted to put it
back into his own name, the deed would read: "I, Steve Greer,
trustee of the Stephen Greer revocable trust, hereby transfer it
back to Steve Greer."
MR. GREER continued, saying only the trustee of the trust can
transfer property once the property has been placed into the trust.
If he has given himself the ability to revoke the trust, obviously
he has given up no right of control with respect to that asset. On
the other hand, if he makes a gift to somebody, in trust, then he
would have given up his right to control that asset. That is, in
fact, what a gift is all about: removing assets from ownership and
putting it into the ownership of somebody else. If done in the
form of a trust, one would transfer it into a irrevocable trust
which has someone named as the trustee of that irrevocable trust.
TAPE 00-17, SIDE A
Number 0030
REPRESENTATIVE GREEN referred to language in the bill that read, "a
person may convey or devise real property to or from a trust
whether or not the trustee of the trust is named as a grantee or
grantor in the instrument of conveyance." He indicated he reads
that as meaning that there is not an irrevocable trust.
MR. GREER informed the committee that often trusts or deeds say
that someone transferred it to "the John Doe trust," for example,
to which title companies would provide an exception on the title
insurance policy. The title company would say that one cannot
transfer to the John Doe trust; one would have to transfer to any
individual who is trustee of the John Doe trust. There must be the
words "trustee of the trust" in there first, he explained. He
pointed out that the language to which Representative Green had
referred is meant to correct that problem. This change would
benefit everyone, including title companies.
CHAIRMAN KOTT announced that the amendment would be faxed to Mr.
Greer's office. The committee took a brief at-ease, less than a
minute. Upon coming back to order, Chairman Kott asked Mr. Greer
if the amendment included what he thought it was supposed to
include.
Number 0306
MR. GREER answered, "Yes, exactly."
REPRESENTATIVE GREEN pointed out that Section 11 adds a new section
to AS 34.25. He asked whether the existing AS 34.25 has a
different meaning or is silent on this matter.
MR. GREER clarified that no section under AS 34.25 [now] addresses
this problem. Therefore, the language was viewed as a welcome
addition.
REPRESENTATIVE GREEN asked if this language would do anything other
than make it clear what has been meant all along.
MR. GREER agreed that the language merely clarifies what has been
meant all along.
CHAIRMAN KOTT asked if there any comments on Amendment 1.
Number 0413
REPRESENTATIVE JAMES made a motion that the committee adopt
Amendment 1 [1-LS1188\I.1, Bannister, 2/18/00, language provided
earlier in this document]. There being no objection, it was so
ordered and Amendment 1 was adopted.
Number 0438
REPRESENTATIVE ROKEBERG made a motion that the committee adopt a
conceptual Amendment 2, which read as follows:
Page 3, line 28, after "annual"
Insert "discount"
He also requested that the drafter determine whether "discount"
needs to be defined in the definitions section.
REPRESENTATIVE GREEN asked if Representative Rokeberg would want
"or" inserted as well.
REPRESENTATIVE ROKEBERG replied "no" and informed the committee
that it is commonly known as the discount rate. He stressed the
need to be clear.
REPRESENTATIVE GREEN asked, "Do you want to make it read the same
where it's used before?"
MR. GREER noted that he had copied different terms from the 12th
Federal Reserve District's website. The term that the 12th Federal
Reserve District used was the "discount window borrowing rate."
REPRESENTATIVE ROKEBERG reiterated his preference to use the word
"discount," as it is a common term. He requested that Mr. Greer
and the drafter add a definition [of "discount"] in this section
and use the Federal Reserve's actual "term of art."
Number 0704
REPRESENTATIVE ROKEBERG restated his previous motion regarding
conceptual Amendment 2, which would insert "discount" on page 3,
line 28, after "annual". Conceptual Amendment 2 would also include
a definition of "discount" in the definition section; that
definition would use the Federal Reserve's actual definition. He
requested that Mr. Greer fax the committee a copy of the website.
MR. GREER said that he would do so. He noted that the website
posts a number of different rates. He reiterated that the rate
that he had in mind was the "discount window borrowing rate."
Number 0796
MS. BEARDSLEY offered a technical correction [later labeled
Amendment 3]. She referred the committee to page 3, line 23, where
"(a)" should be inserted before the word, "Interest". The next
section, Section 4, also deals with AS 13.16.550, she pointed out;
however, Section 4 begins with subsection (b) and refers to
subsection (a).
CHAIRMAN KOTT announced that the committee would return later to
Ms. Beardsley's issue. He then returned attention to
Representative Rokeberg's motion to adopt conceptual Amendment 2
and asked if there was any objection. There being no objection, it
was so ordered and conceptual Amendment 2 was adopted.
Number 0916
CHAIRMAN KOTT brought attention back to Amendment 3, clarifying
that it would insert "(a)" on page 3, line 23, before the word
"Interest". There being no objection, he announced that Amendment
3 was adopted.
MS. RODMAN directed the committee to page 6, line 20, where the
first "in" will be changed to "is" in the next version, as that was
a drafting oversight.
REPRESENTATIVE JAMES commented that it could be corrected now.
REPRESENTATIVE ROKEBERG made a motion that the committee adopt
Amendment 4, which read as follows:
Page 6, line 20,
Delete the first "in"
Insert "is"
There being no objection, it was so ordered and Amendment 4 was
adopted.
Number 0991
REPRESENTATIVE ROKEBERG made a motion to move SSHB 275, as amended,
out of committee with individual recommendations and attached
fiscal notes. There being no objection, CSSSHB 275(JUD) was moved
from the House Judiciary Standing Committee.
REPRESENTATIVE ROKEBERG recalled that last year the committee had
discussed changing the legal rate of interest, which is currently
10.5 percent. He said he thought that rate had been changed last
year.
CHAIRMAN KOTT agreed and announced that he would look into that.
REPRESENTATIVE ROKEBERG pointed out that the usury rate is five
basis points above the discount rate for amounts under $25,000.
Still, the legal rate of interest is a stipulated 10.5 percent,
which is about 400 basis points over the prevailing rate. He asked
Ms. Carpeneti whether the legislature had changed that rate.
ANNE CARPENETI, Assistant Attorney General, Criminal Division,
Legal Services Section-Juneau, Department of Law, clarified that
the legal interest rate was not changed this year. However, there
is a supplement [to the Blue Book].
CHAIRMAN KOTT said it may not have passed. He restated that he
would look into it.
HB 354 - SEXUAL INDUCEMENT OF A MINOR/PORNOGRAPHY
CHAIRMAN KOTT announced that the final order of business before the
committee is HOUSE BILL NO. 354, "An Act relating to criminal
sexual inducement of a minor, to distribution of pornography to
minors, and to sex offenses." Acknowledging the late hour, he told
members he would open testimony on the bill.
Number 1174
GAYLE GARRIGUES, Staff to Representative Brice, testified on behalf
of the sponsor, Representative Brice. She informed the committee
that HB 354 is intended to address two different concerns, both of
which involve children on the Internet. Although the Internet is
a great tool for communication and information, it can also be a
monster because it invites a stranger into the home. Via the
Internet this stranger can influence children in their own homes.
Sometimes adults use access to the Internet in order to gain access
and take advantage of children. Therefore, HB 354 intends to
criminalize that sort of behavior.
MS. GARRIGUES explained that the statute says it is a "course of
conduct," a phrase already used in the criminal code under the
stalking statutes. "Course of conduct" means multiple contacts,
all of which do not have to be over the Internet. Ms. Garrigues
mentioned that there have been a couple of cases in Fairbanks in
which people found young teenagers over the Internet and later met
and convinced these young teenagers to engage in inappropriate
sexual relations. That is addressed in the first section of HB
354.
MS. GARRIGUES turned attention to the second section of HB 354,
which addresses some of the behaviors that are easier to do because
of the Internet. One of those behaviors is called "grooming,"
which is a way to prepare children to do inappropriate behaviors.
She noted that one way "grooming" takes place is by providing
materials, either written or visual, that describe or demonstrate
activities the person would like to have the child engage in. It
is much easier for these materials to be spread to children because
of the Internet. Therefore, the second section of HB 354 is an
effort to stop people from "grooming" children through the use of
these materials. Ms. Garrigues told members the third section of
HB 354 simply adds these two crimes to the sex offender registry.
Number 1371
CHAIRMAN KOTT announced that HB 354 would be held over to the next
meeting on Wednesday, February 23.
ADJOURNMENT
There being no further business before the committee, the House
Judiciary Standing Committee meeting was adjourned at 3:15 p.m.
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