Legislature(2003 - 2004)

04/14/2003 01:01 PM Senate JUD

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                    ALASKA STATE LEGISLATURE                                                                                  
              SENATE JUDICIARY STANDING COMMITTEE                                                                             
                         April 14, 2003                                                                                         
                           1:01 p.m.                                                                                            
MEMBERS PRESENT                                                                                                               
Senator Ralph Seekins, Chair                                                                                                    
Senator Scott Ogan, Vice Chair                                                                                                  
Senator Gene Therriault                                                                                                         
Senator Johnny Ellis                                                                                                            
Senator Hollis French                                                                                                           
MEMBERS ABSENT                                                                                                                
All members present                                                                                                             
COMMITTEE CALENDAR                                                                                                            
SENATE BILL NO. 87                                                                                                              
"An Act  relating to principal  and income in  the administration                                                               
of  trusts and  decedents' estates  and the  mental health  trust                                                               
fund;  adopting a  version of  the Uniform  Principal and  Income                                                               
Act; and providing for an effective date."                                                                                      
     MOVED SB 87 OUT OF COMMITTEE                                                                                               
SPONSOR SUBSTITUTE FOR SENATE BILL NO. 41                                                                                       
"An Act relating  to medical care and crimes  relating to medical                                                               
care, including medical  care and crimes relating  to the medical                                                               
assistance program."                                                                                                            
     MOVED CSSSSB 41(JUD) OUT OF COMMITTEE                                                                                      
SENATE BILL NO. 163                                                                                                             
"An Act  relating to trusts, including  trust protectors, trustee                                                               
advisors, transfers of property in  trust, and transfers of trust                                                               
interests, and  to creditors' claims against  property subject to                                                               
a power of appointment."                                                                                                        
     MOVED CSSB 163(JUD) OUT OF COMMITTEE                                                                                       
CS FOR HOUSE BILL NO. 64(JUD)                                                                                                   
"An Act relating to court  approval of the purchase of structured                                                               
     MOVED CSHB 64(JUD) OUT OF COMMITTEE                                                                                        
SENATE BILL NO. 170                                                                                                             
"An Act relating  to the Code of Criminal  Procedure; relating to                                                               
defenses,  affirmative defenses,  and  justifications to  certain                                                               
criminal  acts; relating  to rights  of  prisoners after  arrest;                                                               
relating  to  discovery,  immunity from  prosecution,  notice  of                                                               
defenses,  admissibility  of  certain   evidence,  and  right  to                                                               
representation in  criminal proceedings; relating  to sentencing,                                                               
probation,  and discretionary  parole; amending  Rule 16,  Alaska                                                               
Rules of  Criminal Procedure, and  Rules 404, 412, 609,  and 803,                                                               
Alaska Rules of Evidence; and providing for an effective date."                                                                 
     SCHEDULED BUT NOT HEARD                                                                                                    
PREVIOUS ACTION                                                                                                               
SB 87 - No previous action to be considered.                                                                                    
SB 41 - See HESS minutes dated 2/26/03 and 3/12/03.                                                                             
SB 163 - No previous action to consider.                                                                                        
HB 64 - See Labor and Commerce minutes dated 3/27/03 and 4/3/03.                                                                
WITNESS REGISTER                                                                                                              
Mr. Brian Hove                                                                                                                  
Staff to Senator Seekins                                                                                                        
Alaska State Capitol                                                                                                            
Juneau, AK  99801-1182                                                                                                          
POSITION STATEMENT:  Introduced SB 87 for the sponsor.                                                                        
Mr. David Shaftel, Atty.                                                                                                        
550 W 7th Ave.                                                                                                                  
Anchorage AK 99510                                                                                                              
POSITION STATEMENT:  Testified on SB 87.                                                                                      
Mr. Rich Hompesch, Atty.                                                                                                        
119 N. Cushman, Suite 400                                                                                                       
Fairbanks AK 99701                                                                                                              
POSITION STATEMENT:  Testified on SB 87 and SB 163.                                                                           
Mr. Steve Greer, Atty.                                                                                                          
Anchorage AK 99510                                                                                                              
POSITION STATEMENT:  Testified on SB 87 and SB 163.                                                                           
Mr. Peter Brautigam, Atty.                                                                                                      
Hoge and Lekisch                                                                                                                
Anchorage AK 99510                                                                                                              
POSITION STATEMENT:  Testified on SB 87 and SB 163.                                                                           
Mr. Jonathan Blattmachr, Atty.                                                                                                  
No address provided                                                                                                             
POSITION STATEMENT:  Testified on SB 87 and SB 163.                                                                           
Senator Lyda Green                                                                                                              
Alaska State Capitol                                                                                                            
Juneau, AK  99801-1182                                                                                                          
POSITION STATEMENT:  Sponsor of SB 41.                                                                                        
Ms. Traci Carpenter                                                                                                             
Staff to Senator Green                                                                                                          
Alaska State Capitol                                                                                                            
Juneau, AK  99801-1182                                                                                                          
POSITION STATEMENT:  Provided explanation on SB 41                                                                            
Mr. Don Kitchen, Assistant Attorney General                                                                                     
Director, Division of Medicaid Fraud                                                                                            
Department of Law                                                                                                               
PO Box 110300                                                                                                                   
Juneau, AK  99811-0300                                                                                                          
POSITION STATEMENT:  Commented on SB 41.                                                                                      
Mr. Steve Branchflower, Director                                                                                                
Alaska Legislature                                                                                                              
Office of Victims' Rights                                                                                                       
1007 West 3rd Avenue, Suite 205                                                                                                 
Anchorage, Alaska 99501-1936                                                                                                    
POSITION STATEMENT:  Commented on SB 41.                                                                                      
Mr. Jack Neilson, Assistant Attorney General                                                                                    
Department of Law                                                                                                               
PO Box 110300                                                                                                                   
Juneau, AK  99811-0300                                                                                                          
POSITION STATEMENT:  Commented on SB 41.                                                                                      
Mr. Doug Blattmachr                                                                                                             
Alaska Trust Company                                                                                                            
POSITION STATEMENT:  Testified on SB 163.                                                                                     
ACTION NARRATIVE                                                                                                              
TAPE 03-21, SIDE A                                                                                                            
CHAIR  RALPH   SEEKINS  called  the  Senate   Judiciary  Standing                                                             
Committee meeting  to order  at 1:01  p.m. Present  were Senators                                                               
Ogan,  French  and  Chair  Seekins.  Senator  Therriault  arrived                                                               
shortly  thereafter. The  Chair  announced  SB 87  to  be up  for                                                               
                  SB  87-PRINCIPAL AND INCOME                                                                               
MR. BRIAN  HOVE, staff to  Senator Seekins, explained that  SB 87                                                               
updates the Principal  and Income Act of 1984.  It provides rules                                                               
for the determination of whether  trust or estate receipts should                                                               
be considered income or principal.                                                                                              
CHAIR  SEEKINS said  this bill  would  bring Alaska  to the  very                                                               
cutting  edge  of  how  trusts   can  be  managed  to  give  more                                                               
flexibility to  the trustee.  He noted  the summaries  from legal                                                               
services that would be useful for the committee to read.                                                                        
MR.  DAVID SHAFTEL  said  he  is part  of  an  informal group  of                                                               
attorneys and trust  officers that have spent the  last six years                                                               
working  to   improve  trust  and  estate   statutes  for  Alaska                                                               
residents primarily, but also for  non-residents that want to use                                                               
Alaska law  in their estate  planning. He pointed out  that other                                                               
states have  actually copied  Alaska statute.  SB 87  is Alaska's                                                               
version of  the 1997  Uniform Principal and  Income Act  that was                                                               
adopted in  1962. The 1997 version  has been enacted by  about 30                                                               
other states and  five other states are pending.  This version is                                                               
modeled after the Pennsylvania version.                                                                                         
The  new version  adds a  modern business  entity tax  investment                                                               
concept  to the  1962 act.  One of  the general  problems in  the                                                               
principal  and  income  area  is  that  often  trusts  have  been                                                               
designed so that the income of the  trust would be paid out to an                                                               
income beneficiary(s) and the principal  of the trust would go to                                                               
other beneficiaries at a later  point. However, there is a built-                                                               
in  conflict with  that type  of  a structure.  The trustee  gets                                                               
pressure  from  the  income beneficiaries  to  invest  in  income                                                               
producing  assets  and  also gets  pressure  from  the  remainder                                                               
persons to invest  in equity assets that will  grow the remainder                                                               
and hold down what is distributed as income.                                                                                    
The  new version  enacts several  remedies to  this problem.  The                                                               
first is  "the power  to adjust," which  allows the  fiduciary to                                                               
invest the  assets of a  trust to  maximize the total  return. If                                                               
too  little  income is  produced  because  of this  process,  the                                                               
fiduciary  has  the  power  to  adjust  by  taking  some  of  the                                                               
principal and allocating it as income.                                                                                          
The second  remedy is to convert  an income producing trust  to a                                                               
modern  type  of trust  called  a  unitrust. A  unitrust  doesn't                                                               
simply pay out  the income earned because it defines  income as a                                                               
percentage of the total assets of  the trust as it is valued each                                                               
year. That percentage can be varied  if the trustee goes to court                                                               
and asks for  approval for a different  percentage; a beneficiary                                                               
can  do the  same. Four  percent is  considered a  neutral amount                                                               
that  would allow  growth of  the  principal and  also provide  a                                                               
larger distribution to the income beneficiary.                                                                                  
SENATOR ELLIS arrived at 1:12 p.m.                                                                                              
SENATOR  THERRIAULT  asked  if the  unitrust  uses  a  percentage                                                               
market valuation methodology.                                                                                                   
MR. SHAFTEL replied that is correct.                                                                                            
SENATOR THERRIAULT asked how moving  principal to income would be                                                               
MR. SHAFTEL  replied the  concept is  that if  there is  a strong                                                               
equity market, the trustee could  get a better overall return for                                                               
both  the  income  beneficiaries  and the  remaining  persons  by                                                               
investing the entire estate in  equities. The equities could grow                                                               
in  one year,  but  it would  all be  unrealized  growth with  no                                                               
income. The trustee would set  a fair percentage for distribution                                                               
to   the  income   beneficiaries   as   income.  Certainly,   the                                                               
beneficiary has the discretion to review.                                                                                       
SENATOR THERRIAULT asked if the  income beneficiary would have to                                                               
sell the equity instrument to realize the income.                                                                               
MR. SHAFTEL replied yes.                                                                                                        
SENATOR OGAN  said the  new language  on page  2, line  1, "Shall                                                               
administrate a trust  or estate in accordance  with the governing                                                               
instrument  even  if  there  is a  different  provision  in  this                                                               
chapter." looks like a blank check.                                                                                             
MR.  SHAFTEL  explained  many  of   the  provisions  are  default                                                               
provisions  and allow  the  leeway for  the  person creating  the                                                               
trust to  draft it  with different rules.  The default  rules are                                                               
designed by  the Uniform Commissioners  to answer  questions that                                                               
haven't  been answered  in the  trust instrument;  it's not  that                                                               
there would be abuse.                                                                                                           
SENATOR  OGAN said  language on  page  2, lines  6 -  8, is  more                                                               
troublesome.  It  reads: "An  inference  that  the fiduciary  has                                                               
improperly exercised the discretionary  power does not arise from                                                               
the fact  that the fiduciary  has made an allocation  contrary to                                                               
the provision of this chapter."                                                                                                 
That  appears to  mean that  if  someone accuses  a fiduciary  of                                                               
improperly exercising the power  that's contrary to this chapter,                                                               
they are not guilty.                                                                                                            
MR.  SHAFTEL explained  they  are saying  your  trust allows  for                                                               
different  rules   and  discretion   is  exercised   under  those                                                               
different rules.  The mere fact  that there's a Uniform  Act that                                                               
provides  the   rules  does  not  establish   that  your  trustee                                                               
following  the  rules  in  your  trust  has  abused  his  or  her                                                               
discretion. It goes back to  the default concept that we're going                                                               
to provide reasonable rules it you don't have any.                                                                              
This bill  has one  subject that deals  with the  tension between                                                               
income and principal beneficiaries  and the other provisions deal                                                               
with a variety  of different kinds of  receipts and disbursements                                                               
and provide default rules.                                                                                                      
MR. RICH  HOMPESCH, trust and estate  attorney, expressed support                                                               
for SB 87 and agreement with Mr. Shaftel's testimony.                                                                           
MR. STEVE GREER,  attorney stated support for SB 87.  He said the                                                               
current act  governs wills and  this legislation  would establish                                                               
rules  governing revocable  trusts.  This is  needed because  the                                                               
nationwide trend is to use revocable trusts in estate planning.                                                                 
MR. PETER BRAUTIGAM  a trust and estate attorney  supported SB 87                                                               
saying this has been long overdue.                                                                                              
MR.  JONATHAN BLATTMACHR  said  he  is a  member  of the  Alaska,                                                               
California  and New  York  Bars and  practices  primarily in  New                                                               
York,  but does  a  fair  amount of  practice  in  Alaska as  co-                                                               
counsel. He supports SB 87 describing  it as a much more flexible                                                               
act that has been designed to  coincide with the modern theory of                                                               
portfolio management.                                                                                                           
SENATOR THERRIAULT  motioned to  pass SB  87 from  committee with                                                               
individual recommendations. There was no  objection and it was so                                                               
           SSSB  41-MEDICAL CARE: CRIMES,COSTS,AUDITS                                                                       
CHAIR SEEKINS announced SB 41 to be up for consideration.                                                                       
SENATOR  LYDA GREEN,  sponsor  of SB  41, said  the  cost of  the                                                               
Medicaid program has  risen at an average rate of  11 percent per                                                               
year since  1999. Alaska's Medicaid  Program has  averaged annual                                                               
increases  of 20  percent, which  is more  than $100  million per                                                               
year and brings  the total projected FY 04 program  costs to just                                                               
under  $1 billion  in federal  and state  funds. Factors  such as                                                               
increased enrollments,  increased use of health  services and the                                                               
increasing cost  of pharmaceuticals  and long  term care  are the                                                               
greatest contributors to the rise  in Medicaid Program costs. The                                                               
state has  limited ability to  contain those costs, but  they can                                                               
help  the  program  integrity  by   targeting  waste  and  fraud.                                                               
Nationally,  the  error  rate of  overpayments  in  the  Medicare                                                               
Program  is  seven  percent.  There is  also  the  commonly  held                                                               
perception  that fraud  committed  against  the Medicaid  Program                                                               
nationwide  amounts to  ten percent.  Whether  those numbers  are                                                               
inclusive  or  not, it  accounts  for  spending  of $70  to  $170                                                               
million. She asked for rigorous controls and frequent scrutiny.                                                                 
She said that  Alaska has no specific health  care criminal theft                                                               
statutes.  Currently,  in order  to  prosecute  those who  commit                                                               
Medicaid fraud,  prosecutors must  use criminal  statutes related                                                               
to actions  coincidental to  the misconduct.  You must  prove the                                                               
conduct was  intentional, which is  a very high standard  to meet                                                               
for a crime  where there is no crime scene  or physical evidence.                                                               
Consequently, there have been few prosecutions.                                                                                 
SB  41  provides the  legal  tools  for  the fiduciaries  of  the                                                               
Medicaid  Program to  establish  program  integrity and  maintain                                                               
maximum  fiscal  control.  It  establishes  a  crime  of  medical                                                               
assistance  fraud;  defines  the  elements  that  constitute  the                                                               
fraud; and classifies  the crime committed as either  a felony or                                                               
misdemeanor.   It  requires   independent  financial   audits  to                                                               
identify errors, overpayments and  criminal violations made to or                                                               
by Medicaid  providers and requires administrative  action within                                                               
90  days  of  each  audit.  It completes  the  loop  between  the                                                               
Department  of   Health  and  Social  Services   (DHSS)  and  the                                                               
Department of Law  (DOL) by requiring copies of all  audits to be                                                               
provided  to the  attorney general  and directing  him or  her to                                                               
notify  DHESS  of  any  charges of  misconduct  filed  against  a                                                               
Medicaid  provider.  Such  notice   requires  the  department  to                                                               
undertake a  complete review  of any  outstanding claims  of that                                                               
provider. Finally,  SB 41 provides  that financing of  the audits                                                               
may  be made  from the  recovery due  to the  audits of  misspent                                                               
SENATOR GREEN  said that recommendation  12 from the  Division of                                                               
Legislative  Audit  states,   "The  Legislature  should  consider                                                               
adopting a  specific criminal statute  related to  Medicaid fraud                                                               
to enhance the Medicaid Fraud Control Unit's effectiveness."                                                                    
Recommendation  7  of  the same  audit  states,  "DMA's  director                                                               
should provide  for a full-time  on-going service  provider audit                                                               
     It's  vital that  the State  of  Alaska administer  its                                                                    
     Medicaid  Program in  a manner  that insures  effective                                                                    
     long-term  cost  containment   while  providing  needed                                                                    
     medical care to its intended recipients.                                                                                   
She  said   they  must  operate  honestly,   responsibly  and  in                                                               
accordance with the law.                                                                                                        
SENATOR OGAN asked why there  "shall" be annual audits instead of                                                               
SENATOR THERRIAULT motioned to adopt CSSSSB 41, version \S.                                                                     
SENATOR ELLIS objected for an explanation of the CS.                                                                            
MS.  TRACI  CARPENTER, staff  to  Senator  Green, explained  that                                                               
version S  has the same  elements as  version Q, but  changes the                                                               
title,  defines  medical  purpose  in  section  1  to  provide  a                                                               
prosecutor the  tools to use  in court  and adds a  definition of                                                               
practitioner, which is already in statute.                                                                                      
SENATOR  ELLIS  asked  why  it's   necessary  to  define  medical                                                               
MR.  DON  KITCHEN, Assistant  Attorney  General  and director  of                                                               
Medicaid Fraud  in Alaska,  answered that he  did not  write that                                                               
section, but  he understands that  it was written during  a court                                                               
trial  when  the  jury  needed   a  definition.  He  thought  Mr.                                                               
Branchflower was the author.                                                                                                    
MR.  STEVE BRANCHFLOWER,  Director,  Office  of Victims'  Rights,                                                               
explained  that there  is  no definition  of  medical purpose  in                                                               
statute right  now and when  someone writes a  prescription there                                                               
is a  requirement that it  be based  on the existence  of medical                                                               
necessity.  Absent   the  medical  necessity,  the   person  that                                                               
prescribes is  subject to  criminal prosecution.  If it  is found                                                               
that the doctor lacks the  requisite medical necessity, he or she                                                               
can be  prosecuted under our drug  laws. The problem he  had when                                                               
he  prosecuted  doctors  for  violating drug  laws  is  that  the                                                               
defense would always assert that  there was a medical purpose and                                                               
much of  the trial would  be spent on  "a battle of  the experts"                                                               
trying to define it.                                                                                                            
1:45 p.m.                                                                                                                     
SENATOR ELLIS  said he is  concerned with  over-prescribing drugs                                                               
in Alaska  and asked if anything  else in the CS  helps with this                                                               
MR.  BRANCHFLOWER  explained  that  the language  on  page  3  is                                                               
probably  the most  important part  of the  statute dealing  with                                                               
prescription  fraud from  a theft  standpoint. Previously  he was                                                               
commenting  on  cases  where  practitioners  are  prosecuted  for                                                               
violations of the drug laws of  the state, but it's also possible                                                               
to prosecute the same practitioners  for a theft related offense.                                                               
That would be two counts.                                                                                                       
TAPE 03-21, SIDE B                                                                                                            
MR. BRANCHFLOWER said the medical  necessity definition is key as                                                               
well as the medical assistance  fraud section. Alaska is the only                                                               
state that has  no criminal statutes specific  to the prosecution                                                               
of health care practitioners.                                                                                                   
SENATOR ELLIS  asked if other  states had done other  things that                                                               
could fit within  this legislation in terms  of prescription pads                                                               
and tracking  that could help with  what he believes is  a fairly                                                               
significant ongoing criminal activity.                                                                                          
MR. BRANCHFLOWER  said it is  a problem and  this bill is  a very                                                               
good start.  There are employees  within the Division  of Medical                                                               
Assistance   who   could   assist  prosecutors   in   identifying                                                               
prescribing practitioners and it would  be a matter of permitting                                                               
the  investigators   to  sit   during  Drug   Utilization  Review                                                               
Subsystem (DURS)  meetings, which he thought  the audit suggested                                                               
SENATOR ELLIS removed his objection and the CS was adopted.                                                                     
SENATOR OGAN reiterated his question  about using "shall" and not                                                               
"may" for annually contracting independent audits.                                                                              
SENATOR GREEN replied the audit  function is incredibly important                                                               
and has  to be  repeated although it  is cumbersome.  The "shall"                                                               
language means  it is required  and they will continue  and there                                                               
will be follow up.                                                                                                              
SENATOR OGAN asked why there is  a fiscal note since the recovery                                                               
is indicated  to be more  than the cost  of the program.  He also                                                               
questioned whether it would go into the general fund.                                                                           
SENATOR GREEN replied  the language in the bill  says that enough                                                               
money  could be  appropriated to  do the  next year's  audit. She                                                               
thought it would be better than a wash.                                                                                         
SENATOR ELLIS asked  if there was anything in the  bill that went                                                               
beyond the effort  to contain medical fraud,  because his reading                                                               
of section 4  on page 7 gives  him pause. He wanted  to know what                                                               
she  wanted to  accomplish with  that section  by using  the word                                                               
"seek" rather than "receive."                                                                                                   
SENATOR  GREEN replied  the  department couldn't  be  held to  be                                                               
responsible for an individual to  receive a service they have not                                                               
SENATOR ELLIS asked if that was a problem in the past.                                                                          
MR. JACK NEILSON, Assistant Attorney  General, said that language                                                               
means that  the recipient  is supposed to  seek only  the medical                                                               
care they need under the  Medicaid Program. Some recipients might                                                               
want a free trip to Seattle or something like that.                                                                             
SENATOR  ELLIS  said  he  feels the  intent  language  is  pretty                                                               
subjective. He asked what would happen  to a person who was dying                                                               
of cancer  and was  looking for other  drugs or  something beyond                                                               
chemotherapy.  Would  they  be  more  likely  to  be  accused  or                                                               
convicted  of Medicaid  fraud  if they  were  more aggressive  in                                                               
their concern about their personal care?                                                                                        
MR. NEILSON replied, "Most certainly not."                                                                                      
SENATOR OGAN asked if this  language targeted people who used the                                                               
emergency room to get Tylenol.                                                                                                  
MR. NEILSON said this could be used in that instance.                                                                           
SENATOR OGAN asked if this was aimed at providers mostly.                                                                       
MR.  NEILSON replied  his understanding  is that  the Legislature                                                               
felt  recipients should  be clear  about what  medical assistance                                                               
they are seeking.                                                                                                               
SENATOR ELLIS asked  if the fiscal note  anticipated any increase                                                               
in Medicaid fraud investigators.                                                                                                
SENATOR  GREEN  replied  they  would  contract  with  an  outside                                                               
attorney to do part of the legwork.                                                                                             
SENATOR ELLIS  said he feels  they will find  a lot of  new cases                                                               
and if there aren't new  investigators he questioned whether they                                                               
wouldn't fall behind.                                                                                                           
SENATOR GREEN said she didn't  really know since the division was                                                               
in  the middle  of reorganization.  Many of  the audits  would be                                                               
paper audits,  which would require  backup and  substantiation of                                                               
services, etc.                                                                                                                  
MR. BRANCHFLOWER added the Medicaid  Fraud Control Unit currently                                                               
has three  investigator positions  and two  of those  are filled.                                                               
The third position  is funded, but it is vacant.  The unit has 75                                                               
percent federal  funding and  a 25 percent  state match.  So, the                                                               
increased leads these audits are  expected to find will result in                                                               
the filling of the third position.                                                                                              
SENATOR THERRIAULT  motioned to pass CSSSSB  41(JUD), version \S,                                                               
from  committee with  individual  recommendations. Senator  Ellis                                                               
objected to  establish that the  language in the  purpose section                                                               
is not  intended and  wouldn't lessen  someone's ability  if they                                                               
meet the  federal and  state requirements  to participate  in the                                                               
Medicaid plan  and that  they are just  trying to  establish that                                                               
people should seek appropriate care.                                                                                            
SENATOR GREEN said that was correct.                                                                                            
SENATOR ELLIS asked if the  medical groups in the state expressed                                                               
support of the bill.                                                                                                            
SENATOR GREEN said she received very little response.                                                                           
SENATOR ELLIS  said he was  a little  concerned about that  as he                                                               
would hate  to see  this effort undercut  at some  point, because                                                               
they weren't aware of this.                                                                                                     
SENATOR  ELLIS removed  his objection  and  CSSSSB 41(JUD)  moved                                                               
from committee.                                                                                                                 
2:18 - 2:23 p.m. - at ease                                                                                                      
         SB 163-POWERS OF APPOINTMENTS/TRUSTS/CREDITORS                                                                     
CHAIR SEEKINS announced SB 163 to be up for consideration.                                                                      
SENATOR THERRIAULT  motioned to adopt CSSB  163(JUD), version \I.                                                               
There was no objection and it was so ordered.                                                                                   
MR. BRAIN  HOVE, staff  to Senator  Seekins, said  this dovetails                                                               
with SB 87.                                                                                                                     
     In 1997,  legislation was passed  making Alaska  one of                                                                    
     the   best   trust   jurisdictions   nationwide.   This                                                                    
     legislation  made two  significant changes  to existing                                                                    
     law. First,  it provided  that an individual  could set                                                                    
     up a  trust and have  the trust  as long as  the family                                                                    
     wanted. This  is known as a  perpetual trust. Secondly,                                                                    
     it provides  that an  individual could  set up  a trust                                                                    
     where he  or she  could be a  beneficiary and  have the                                                                    
     trust's  assets protected  from future  creditors. This                                                                    
     is known as a self-settled  spendthrift trust. Over the                                                                    
     last six  years, the states  of Delaware,  Rhode Island                                                                    
     and Nevada  have not only adopted  similar legislation,                                                                    
     but   also   incorporated   improvements   to   certain                                                                    
     provisions.  Idaho and  South  Dakota  have also  added                                                                    
     features  to their  general trust  laws  that now  make                                                                    
     them comparatively  advantageous. SB 163  places Alaska                                                                    
     trust legislation  back on an equal  footing with these                                                                    
     states.  Additionally,  SB  163 codifies  a  number  of                                                                    
     matters  that  have  been   accepted  by  Alaska  trust                                                                    
     practitioners,  as being  the common  law of  the state                                                                    
     for  which there  has  been  no statutory  counterpart.                                                                    
     Overall, these  changes are designed to  keep Alaska as                                                                    
     the  premier  trust  jurisdiction,  thereby,  not  only                                                                    
     retaining  financial  resources   in  state,  but  also                                                                    
     continuing  to  attract  non-resident trust  assets  to                                                                    
MR. JON BLATTMACHR  said he is the one  that originally suggested                                                               
the  legislation  to  allow  the  United  States  and  Alaska  in                                                               
particular  to  capture  business  that was  going  to  off-shore                                                               
jurisdictions  and to  create trusts  that  last as  long as  the                                                               
family wants.  He emphasized how extraordinarily  successful this                                                               
legislation has been  for the State of Alaska. SB  163 would help                                                               
Alaska   catch  up   and  in   certain  cases,   surpass  similar                                                               
legislation enacted in some other states.                                                                                       
MR.  DOUG   BLATTMACHR,  Alaska  Trust  Company,   supported  the                                                               
statements  his brother  made adding  that  this helps  fine-tune                                                               
what they  have already done  and brings Alaska to  the forefront                                                               
of being a premier jurisdiction.  The legislation that has passed                                                               
has brought  significant business to Alaska.  They typically have                                                               
$20  million  to  $30  million  on  deposit  with  local  banking                                                               
institutions. In  2001, over  $700,000 additional  life insurance                                                               
premium tax  dollars came  to the state  and they  estimate about                                                               
$500,000 came in this year from his institution alone.                                                                          
MR. STEVE GREER  said this bill has been two  years in the making                                                               
and  articulates what  they  believe  the common  law  to be.  It                                                               
clarifies  some of  the ambiguity  that the  original legislation                                                               
has and incorporates some Delaware provisions.                                                                                  
MR. SHAFTEL  said he also supports  SB 163 and that  this vehicle                                                               
has been accepted and used widely by Alaska residents.                                                                          
MR.  PETER BRAUTIGAM  said this  legislation that  they have  all                                                               
worked on since 1997 has been  beneficial to all of their clients                                                               
in Alaska that do estate planning.                                                                                              
MR.  RICH HOMPESCH  said  he also  supports SB  163  for all  the                                                               
reasons mentioned.                                                                                                              
MR. JOHN MAINE, Director, Division  of Child Support Enforcement,                                                               
said he was concerned about  how they could enforce child support                                                               
with regard  to trusts. They  hope this language does  not hinder                                                               
their ability to collect child support.                                                                                         
SENATOR ELLIS asked if he  didn't understand the bill well enough                                                               
to  know if  it  would  hinder child  support  enforcement as  it                                                               
relates to trusts.                                                                                                              
MR.  MAINE explained  that revocable  trusts  are something  they                                                               
have had to learn  to live with and they have  dealt with them in                                                               
three or four  cases. He said they removed the  word "primary" on                                                               
page  3, line  12,  and  the division  could  probably work  with                                                               
language about showing intent to defraud child support.                                                                         
SENATOR  THERRIAULT  said  that   language  attracted  a  lot  of                                                               
attention when the bill passed originally.                                                                                      
MR. GREER explained that page 3, line 12 [indisc].                                                                              
TAPE 03-22, SIDE A                                                                                                            
SENATOR ELLIS asked if the trust protection is new.                                                                             
MR.  GREER  said the  language  didn't  add anything.  They  just                                                               
wanted to clarify that if there  is intent to defraud a creditor,                                                               
that transfer can be set aside.                                                                                                 
SENATOR ELLIS asked for a comparison  in layman's terms of what a                                                               
trust protector,  a trustee advisor,  and a trustee would  be. He                                                               
asked whether  trust protectors are  something new that  they are                                                               
adding to the statute.                                                                                                          
MR.  DOUG BLATTMACHR  replied yes,  they are  adding that  to the                                                               
statute,   but  it's   something   that  is   being  used   quite                                                               
extensively.  About 99  percent  of their  trusts  use the  trust                                                               
protector concept. It's  only there if the person  setting up the                                                               
trust wants  to put in  a trust protector  and that is  usually a                                                               
trusted friend  or advisor. They  can remove the trustee  if they                                                               
don't think he  is performing the job properly or  for any number                                                               
of other reasons without going to court.                                                                                        
SENATOR  FRENCH  asked  if  these  are  called  asset  protection                                                               
MR. BLATTMACHR  replied that the  first piece of  legislation was                                                               
done for two primary reasons.                                                                                                   
     To  allow trusts  to last  more than  the rule  against                                                                    
     perpeties,  which  is  about  80  years,  because  some                                                                    
     people want to continue a  trust for a longer period of                                                                    
     time for tax and non-tax reasons.                                                                                          
     The main reason we wanted  to provide for these, what's                                                                    
     called self  settled spendthrift  trusts, is  where you                                                                    
     can be  a beneficiary and  not have the  asset attached                                                                    
     by future  creditors. We wanted to  encourage people to                                                                    
     make lifetime transfers...Right  now, under the federal                                                                    
     tax  code,  everybody has  a  million  dollars that  if                                                                    
     their  estate, if  they die  with less  than a  million                                                                    
     dollars, doesn't  pay any tax.  Well, you can  use that                                                                    
     during your  lifetime. So, many times  people will have                                                                    
     come to planners  and say, 'You know, when  we die, our                                                                    
     children have  to pay a fairly  significant estate tax.                                                                    
     What can we do?'                                                                                                           
They may have  $4 million and indicate that they  live well below                                                               
their  means and  they don't  need all  this money  and they  can                                                               
transfer  that   to  their  children   today  and  get   all  the                                                               
appreciation out  of the estate.  So, if they transfer  a million                                                               
dollars, in  20 years  at historical rates  you're going  to have                                                               
probably  close to  $8 million  additional in  your estate  to be                                                               
taxed. If  you kept it, your  heir would pay about  $4 million in                                                               
MR. BLATTMACHR  said he  wanted to  encourage people  to transfer                                                               
money  to their  heirs,  but  they might  transfer  too much  and                                                               
actually need to  have some money back. A  beneficiary feels more                                                               
comfortable making the  transfer knowing that if he  needs it, he                                                               
can go  back to  the trustee. A  lot of people  who set  up these                                                               
trusts  for  legitimate  reasons  are coming  back  to  the  U.S.                                                               
jurisdiction  because   they  don't  have  to   go  off-shore  to                                                               
legitimately accomplish what they want to accomplish.                                                                           
SENATOR FRENCH asked if Alaska  had ever adopted the FTA, Uniform                                                               
Fraudulent Transfer Act.                                                                                                        
MR. GREER replied they have not adopted the act.                                                                                
SENATOR THERRIAULT  said the trust  protector is new  to statute,                                                               
but not new to the state.                                                                                                       
MR. DOUG BLATTMACHR said they have  encouraged the use of a trust                                                               
protector.  "We think  that if  we can't  keep the  beneficiaries                                                               
happy, we probably don't want the relationship anyway."                                                                         
SENATOR  FRENCH  asked  if  this bill  adds  any  protection  for                                                               
MR. BLATTMACHR replied that it  just clarifies some things - like                                                               
what is an existing creditor and what isn't.                                                                                    
MR. GREER replied yes there was  an addition on page 5 that could                                                               
be very helpful [indisc]                                                                                                        
SENATOR ELLIS  asked how these services  are marketed, especially                                                               
to folks outside of Alaska.                                                                                                     
MR. DOUG BLATTMACHR  replied that in the beginning it  was a very                                                               
hot topic in the estate planning  community and they got a lot of                                                               
press.  Then there  were  about 15  seminars  across the  country                                                               
sponsored  by  New  York  Life,  a  company  that  markets  their                                                               
services at the  largest estate planning conference  that is held                                                               
each year. As  time goes on, more and  more professionals started                                                               
talking about it.                                                                                                               
SENATOR THERRIAULT motioned to pass CSSB 163(JUD), version \I,                                                                  
from committee with individual recommendations. There was no                                                                    
objection and it was so ordered.                                                                                                
           HB  64-PURCHASE OF STRUCTURED SETTLEMENTS                                                                        
CHAIR SEEKINS announced HB 64 to be up for consideration.                                                                       
MR. PAUL LABOLLE, staff to Representative Foster, said HB 64                                                                    
sets up state oversight to the transfer of structured                                                                           
     There  are three  primary reasons  to do  this. One  is                                                                    
     consumer   protection.  In   this   state,  we've   had                                                                    
     factoring  companies  acquiring structured  settlements                                                                    
     from payees at  discounted rates as low as  20 cents on                                                                    
     the dollar.  Once that  happens, on  top of  that, they                                                                    
     now  have   to  pay   tax,  whereas  as   a  structured                                                                    
     settlement in and of itself is a tax free settlement.                                                                      
     What this does is move  you into the next reason, which                                                                    
     is the  good of  the state. Structured  settlements are                                                                    
     primarily set  up to keep  a disabled person  who can't                                                                    
     work in a  flow of income so that they  do not become a                                                                    
     burden on the  state. If the transfer is  made and they                                                                    
     run out of  money, that person now becomes  a burden on                                                                    
     the state and  the second reason that this  is good for                                                                    
     the state  is many of these  structured settlements are                                                                    
     written in a  way that makes them  non transferable and                                                                    
     currently   we  have   transfers  happening   that  are                                                                    
     technically  legal, but  there is  no state  oversight.                                                                    
     So, nobody is watching what is happening.                                                                                  
     The third  reason is  that it  conforms to  federal tax                                                                    
     law, which came out last  year and imposes a 40 percent                                                                    
     prohibitive  tax  on  structured  settlement  transfers                                                                    
     unless they  are approved by  a qualified  order, which                                                                    
     is issued by a state.                                                                                                      
SENATOR OGAN asked for an example of a structured settlement.                                                                   
MR. LABOLLE replied that in most cases, they are a personal                                                                     
injury settlement, like from a car crash.                                                                                       
SENATOR OGAN asked if some operators are preying on people.                                                                     
MR.  LABOLLE replied  they have  a lot  of anecdotal  evidence of                                                               
that, but that is not  happening currently because of the federal                                                               
tax  law, which  has  effectively  put a  halt  on any  transfers                                                               
because of the 40 percent tax on the discounted value.                                                                          
SENATOR OGAN asked why there is no fiscal note.                                                                                 
MR. LABOLLE  explained there  is a zero  fiscal note  because the                                                               
Alaska  State Court  does not  anticipate there  to be  enough to                                                               
justify a cost and the numbers  would be absorbed into the normal                                                               
CHAIR SEEKINS said he believes the legislation has merit.                                                                       
SENATOR  THERRIAULT  asked if  the  federal  law prohibiting  any                                                               
transfers was in place until the state stepped in.                                                                              
MR. LABOLLE  replied that is  correct and referenced the  Tax Law                                                               
in Chapter 55 of Public Law 107-134, Section (a).                                                                               
SENATOR THERRIAULT  motioned to pass CSHB  64(JUD) from committee                                                               
with attached fiscal notes. There was  no objection and it was so                                                               
CHAIR SEEKINS recessed the meeting  at 3:05 p.m. and announced he                                                               
would reconvene the meeting at 5:00 p.m. the following day.                                                                     

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