Legislature(1999 - 2000)
05/03/1999 02:02 PM Senate JUD
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* first hearing in first committee of referral
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+ teleconferenced
= bill was previously heard/scheduled
SENATE JUDICIARY COMMITTEE
May 3, 1999
2:02 p.m.
MEMBERS PRESENT
Senator Robin Taylor, Chairman
Senator Rick Halford, Vice-Chairman
Senator Dave Donley
Senator Johnny Ellis
MEMBERS ABSENT
Senator John Torgerson
COMMITTEE CALENDAR
SENATE JOINT RESOLUTION NO. 25
Relating to voluntary school prayer.
-MOVED SJR 25 OUT OF COMMITTEE
SENATE BILL NO. 162
"An Act relating to the rule against perpetuities, nonvested
property interests, and powers of appointment; and providing for an
effective date."
-HEARD AND HELD
SENATE BILL NO. 163
"An Act relating to a trustee's duties to inform and account to
beneficiaries; relating to the revocation, modification,
termination, reformation, construction, and trustees of trusts; and
relating to transfer restrictions in trusts."
-HEARD AND HELD
CS FOR HOUSE BILL NO. 83(JUD)(title am)
"An Act relating to certain securities occupations and investment
pools; relating, with regard to the Alaska Securities Act, to
federal covered securities, the registration of securities, the
general exemptions for securities and transactions, Internet offers
of securities and transactions, file confidentiality, petitions to
superior court by the administrator to reduce civil penalties to
judgment, time limits for bringing court actions for violations,
administrator-established fees and administrator-required
reimbursements, consent to service, title, sales, purchases, offers
to sell, and offers to purchase; exempting certain violations of
the Alaska Securities Act from criminal penalties; amending or
repealing certain current definitions in the Alaska Securities Act;
providing new Alaska Securities Act definitions for certain
securities occupations, for certain federal statutes, and for the
terms 'advisory client,' 'advisory fee,' 'advisory services,'
'clients who are natural persons,' 'federal covered security,'
'investment advisory business,' 'investment advisory contract,'
'NASDAQ,' 'notice filing,' 'place of business,' 'principal place of
business,' 'securities business,' 'substantial portion of the
business,' and 'supervised person'; and providing for an effective
date."
-HEARD AND HELD
PREVIOUS SENATE COMMITTEE ACTION
SJR 25 - No previous action to report.
SB 162 - No previous action to report.
SB 163 - No previous action to report.
HB 83 - See Labor and Commerce minutes dated 4/20/99.
WITNESS REGISTER
Senator Jerry Ward
State Capitol
Juneau, AK 99801-1182
POSITION STATEMENT: Presented SJR 25
Mr. Jeff White
PO Box 9148
Ketchikan, AK 99901
POSITION STATEMENT: Testified in support of SJR 25
Ms. Marsha George
PO Box 7175
Ketchikan, AK 99901
POSITION STATEMENT: Testified in support of SJR 25
Ms. Beth Chapman
302 Gold Street
Juneau, AK 99801
POSITION STATEMENT: Testified in support of SB 162 and SB 163
Ms. Mary Zemp
302 Gold Street
Juneau, AK 99801
POSITION STATEMENT: Testified in support of SB 162 and SB 163
Mr. Dave Shaftel
550 W. 7th Ave. #705
Anchorage, AK 99501
POSITION STATEMENT: Testified in support of SB 162 and SB 163
Mr. Rich Hompesch
119 N. Cushman Suite 400
Fairbanks, AK 99701
POSITION STATEMENT: Testified in support of SB 162 and SB 163
Representative Norman Rokeberg
State Capitol
Juneau, AK 99801-1182
POSITION STATEMENT: Presented HB 83
Mr. Terry Elder
Senior Securities Examiner
Division of Banking, Securities
and Corporations
PO Box 110807
Juneau, AK 99801-0807
POSITION STATEMENT: Testified in support of HB 83
ACTION NARRATIVE
TAPE 99-28, SIDE A
Number 001
CHAIRMAN ROBIN TAYLOR called the Judiciary Committee meeting to
order at 2:02 p.m. Present were Senators Halford, Donley, Ellis,
and Chairman Taylor. The first order of business to come before
the committee was SJR 25.
SJR 25-VOLUNTARY SCHOOL PRAYER
SENATOR JERRY WARD, sponsor, explained SJR 25 requests the Alaska
congressional delegation to support the passage of HJR 7 and SJR 1,
related to school prayer. Those resolutions read:
Nothing in this Constitution shall be construed to prohibit
individual or group prayer in public schools or other public
institutions. No person shall be required by the United
States of any other state to participate in prayer. Neither
the United States nor any state shall compose the words of any
prayer to be said in public schools.
SENATOR WARD pointed out prayer in public schools occurred until
1962, at which time an unelected judge decided it was
unconstitutional. He believes that decision was in error.
SENATOR WARD said he introduced SJR 25 after watching a news story
about the shootings at the Littleton, Colorado high school. A
teacher, who told the students to pray in a classroom for the other
students during the incident, broke the law. He noted that prayer
is the most powerful tool he is aware of. He feels that the debate
about allowing prayer in public schools needs to occur on the
federal level. He asked that the Alaska Legislature go on record
in support of allowing prayer in public schools.
Number 097
MR. JEFF WHITE, the principal of a private Christian school in
Ketchikan, made the following comments via teleconference. He
supports SJR 25 and believes that when prayer was no longer
permitted in public schools, violence, teen pregnancy, drug and
alcohol abuse escalated. The older generation benefitted from a
school system that had prayer time. The Bible speaks of a
generation that did not know God. We are raising a generation
without the knowledge of God. Likewise, he believes reciting the
Pledge of Allegiance instills in children a bond with their nation
and a sense of patriotism. Teenagers learn to apply what they were
taught as children and what we are seeing today is teenagers who
have no standards to live by.
Number 175
MARSHA GEORGE, affiliated with the Church of God in Ketchikan,
stated that prayer, and volunteer and paid chaplains, are available
to and the military and jail system, legislatures and Congress, and
in some work places. She questioned why chaplains and prayer have
been outlawed in public schools. Prayer has been outlawed yet
abortion and gambling are legal in many states and many states are
seriously considering legalizing euthanasia. She wishes the
leadership of this country would do the right thing and legalize
prayer in school.
Number 234
SENATOR DONLEY stated that SJR 1 specifies that no person be
required by the United States or any state to participate in
prayer, and it says that neither the United States nor any state
should compose the words of any prayer to be said in public
schools. He questioned the constitutional interpretation of the
words "any state" and whether a school district could required
students to participate in prayer and could approve certain
prayers.
SENATOR WARD replied a school district could not. He noted SJR 1
is intentionally written to prohibit anyone from imposing his/her
religious views on another.
SENATOR DONLEY questioned how a school will determine what words
are used in the prayer.
SENATOR WARD answered the prayer would be silent. He explained
silent prayer occurred in 1962 when the American Civil Liberties
Union fought that activity in court and won. He pointed out the
same court prohibited the posting of the Ten Commandments in a
school, yet it decided that Larry Flint had the right of free
speech. He asserted it is time that legislators have this debate
on a national level to see what the country's moral compass is. He
repeated nothing in SJR 1 or HJR 7 imposes any words of prayer or
any specific religious beliefs.
Number 282
SENATOR DONLEY noted he is trying to figure out how the proposed
constitutional amendment will relate because while SJR 1 and HJR 7
appear to allow verbal prayers, they specify that neither the
federal or state governments can compose the words of the prayer.
He questioned who will determine what prayer will be said.
CHAIRMAN TAYLOR agreed the issue is somewhat ambiguous but he
pointed out that at times, not all legislators are in agreement
with the prayer offered on the Senate floor, yet the carrying out
of the law will have to be left to the person offering the
ministerial service. He noted the chaplains in the Army are not
instructed in the type of prayers they should offer so, in that
setting, the prayer is often ecumenical. He hoped the people
offering the prayer consider the congregation before them.
Number 336
SENATOR ELLIS stated the type of lead-prayer, referred to by
Chairman Taylor, when sponsored by the public school system,
contradicts the sponsor's statement that silent, unlead-prayer
would occur.
CHAIRMAN TAYLOR said he was referring to the instances in
government institutions today in which a person has to verbalize a
prayer, and how that person has to make difficult decisions. He
doubted that could occur in a school setting.
SENATOR WARD pointed out that silent prayer occurred in Alaskan
schools for the year preceding the 1962 decision for the reason
that classrooms contained a diverse group of people. He noted the
same resolution has been introduced every year in Congress since
1962.
SENATOR DONLEY said, given our court system, he believes a
stringent application of the constitutional amendment would be
imposed to ensure that prayers are ecumenical and to protect the
religious beliefs of all denominations.
SENATOR HALFORD moved SJR 25 from committee with individual
recommendations. SENATOR ELLIS objected because he had not had a
chance to review the copy of the materials before Congress. The
motion to pass SJR 25 from committee carried with Senators Halford,
Donley and Taylor voting "yea," and Senator Ellis voting "nay."
HB 83-ALASKA SECURITIES ACT
REPRESENTATIVE NORM ROKEBERG, sponsor of HB 83, made the following
comments. HB 83 amends the Alaska Security Act to mainline with
the National Security Marketing Improvement Act. Alaska has until
October 1999 to enact HB 83 or it will lose over $4 million in
revenue from the registered security industry from program
receipts. Forty states have adopted similar legislation. The
major banking institutions in the state are in agreement with this
legislation. HB 83 preempts from registration a new class of
securities, called federal covered securities. Without this
legislation, investment advisors and their agents would be totally
unregulated. HB 83 has been thoroughly reviewed by three
committees already.
Number 414
SENATOR DONLEY asked why Alaska will lose $4 million in revenue if
HB 83 is not enacted. REPRESENTATIVE ROKEBERG explained the revenue
is comprised of registration fees from, primarily, the mutual fund
industry. Every mutual fund and registered agent must pay a
registration fee.
SENATOR DONLEY asked if that money would come to the state to help
regulate the industry. REPRESENTATIVE ROKEBERG replied that is
correct.
Number 427
TERRY ELDER, Director of the Division of Banking, Securities and
Corporations, Department of Commerce and Economic Development
(DCED), informed committee members that HB 83 will bring Alaska
into compliance with the National Securities Market Improvement Act
(NSMIA) which passed in October of 1996. That Act created federal
covered securities and federal covered advisors. NSMIA preempted
state registration of those but provided that the states, in order
to be revenue neutral, could continue to collect fees and require
notice filings for those securities. The states were given three
years to bring their securities acts into compliance with federal
law. State laws were to cover securities and advisors and could
continue to require the filing of notices and the payment of fees.
In Alaska, the fees equal about $4 million. The Investment Company
Institute, the major association representing the mutual fund
industry, has provided a letter of support for HB 83. The
Institute expects the fees collected to be used to regulate the
securities industry, however Alaska, like almost every other state,
does not spend as much as it collects on regulation. The House
passed HB 83 with a unanimous vote as did the Senate Labor and
Commerce Committee. The bill has broad bipartisan support and
essentially no opposition.
Number 452
MR. ELDER said because passage of NMSIA required a substantial re-
write of the Alaska Securities Act, other improvements were made to
the Alaska Securities Act as well. First, an accredited investor
exemption was added to the list of those exempted from
registration. The language was drafted by the North American
Securities Administrators' Association. Its purpose is to allow
Alaskan businesses to use the Small Business Administration's
ACENET program which is an electronic matching service. Second, HB
83 exempts transactions conducted solely within a family. Third,
HB 83 contains a provision to allow the division to go to court to
reduce a fine to a judgment when a final order has been made. That
provision will help the division go after out-of-state people who
cheat Alaskans. In addition, changes were made to the recision
provisions for securities sold without registration. Under current
law, one who sells securities in Alaska without registration is
liable to the buyer for a period of three years. The buyer could
sue for the cost of the securities plus six percent interest per
year. The new proposal changes the six percent interest rate to
eight percent or the stated rate on the note, whichever is less.
The three year time period remains unless the transaction was
fraudulent, in which case an additional two years to sue, from the
date of which the fraud became known, will be allowed.
SENATOR DONLEY asked what the time limit is for an unlicensed sale.
MR. ELDER replied if the seller is unregistered but the transaction
is not fraudulent, the time limit is three years.
Number 472
SENATOR DONLEY asked if an unlicensed person committed fraud, and
the seller was aware of the fraud when the transaction occurred,
whether the time period would be two or three years.
MR. ELDER replied if an element of fraud can be proved, then the
longer time period would be appropriate. He clarified that the
bill provides for whichever time period is longer.
CHAIRMAN TAYLOR noted the time period is a minimum of three years,
but if fraud is involved an additional two years would be allowed.
SENATOR DONLEY asked what types of investment professionals, not
currently licensed, will be required to get licensed if HB 83
passes. MR. ELDER said no one who is not currently licensed will
be licensed under this bill.
SENATOR DONLEY asked if the revenue will be in the form of federal
funds. MR. ELDER stated the revenue will come from filing notice
and registration fees that are collected from the industry.
SENATOR DONLEY questioned whether that is current practice, however
the new federal law removes the state's authority to continue to do
so without adopting the Uniform Act. MR. ELDER said that is
correct.
SENATOR DONLEY asked if the fees will increase. MR. ELDER said the
fees are set by state regulation so they can change periodically.
CHAIRMAN TAYLOR maintained that by regulation, Alaska could
increase the notice and registration fees paid by municipal funds,
and yet it would not have the authority under federal law to
enforce those regulations.
MR. ELDER stated if HB 83 is not enacted, Alaska could adopt a fee
structure but it would not have the authority to take action if the
fee was not paid.
CHAIRMAN TAYLOR pointed out the real policing mechanism is found
with the citizen's ability to file a civil action against the
seller. He asked if the division has enforcement mechanisms. MR.
ELDER replied the division has enforcement mechanisms but federal
law preempts registration and allows notice filings, but the fact
that the investment advisor or mutual fund filed a notice makes
them subject to Alaska's anti-fraud rules. Federal law continues
to give the states authority to investigate fraud.
CHAIRMAN TAYLOR announced the committee would take up SB 162.
SB 162-RULE AGAINST PERPETUITIES
BETH CHAPMAN, an attorney with the law firm of Faulkner Banfield,
stated she is testifying on behalf of herself and her colleagues,
Mary Zemp and Eric Keifner. They have an extensive practice in
trust and estate law, and have seen significant movement in that
area by the Legislature in the last several years. SB 162 will
make a technical correction to the Alaska Trust Act, adopted on
April 2, 1977. That Act effectively repealed the rule against
perpetuities, a rule rooted in the common law that prohibits trusts
from existing for longer than approximately 90 to 110 years. The
legislature repealed that rule so that trusts, established pursuant
to that act, could be created to allow families to pass assets down
through the generations. Unfortunately, the Alaska Trust Act did
not deal with perpetual charitable lead trusts which are
established to provide income to a charity for a specified term.
When the Alaska Trust Act was enacted to repeal the rule against
perpetuities, it focused on persons living at the time, so it does
not apply to charities. She noted people would like to establish
charitable lead trusts in Alaska but are unable to do so.
SENATOR HALFORD asked for a description of a charitable lead trust.
MS. CHAPMAN explained an individual may establish a trust and
choose to pay all of of the trust's income to a charity for the
first 20 years. After 20 years, the money can revert to the
grantor or possibly to the grantor's heirs. Charitable lead trusts
are established pursuant to the Internal Revenue Code and qualify
for the charitable deduction.
SENATOR DONLEY asked if the full value of the trust can be taken as
a tax deduction. MS. CHAPMAN answered no, the actuarial value is
taken as a deduction.
CHAIRMAN TAYLOR asked if that is because it will be tied up for the
20 year period. MS. CHAPMAN said that is correct, and explained
that the income generated by the trust is deducted because it is
paid to a charity.
MS. CHAPMAN pointed out the Alaska Trust Act was established to
generate business and make Alaska a favored location for trusts,
so, while many people have expressed interest in establishing
charitable lead trusts in Alaska, they cannot because of the
technical problem regarding the rule against perpetuities.
CHAIRMAN TAYLOR asked Ms. Chapman to testify on SB 163 while she
was present.
SB 163-TRUSTS AND TRUSTEES
MS. BETH CHAPMAN, an attorney with the law firm of Faulkner
Banfield, explained that SB 163 is additional trust legislation
designed to provide guidance to individuals who are establishing
trusts, to attorneys who are drafting trusts, and to the courts who
administer trusts if litigation arises. Current statute requires
a trustee to inform and to account to beneficiaries of the trust.
The term "current beneficiary" is used in statute to refer to who
is to be notified when a trust is registered, however, that term is
not defined in statute. SB 163 defines a "beneficiary" as "a
person who sees a mandatory distribution of income or principal
from a trust," which is how practitioners throughout the state have
interpreted that term. The court recently used a different
interpretation; an interpretation contrary to the grantor's intent
when the trust was established.
MS. CHAPMAN maintained that a statutory definition is needed to
limit the beneficiary to someone who receives a mandatory
distribution of income or principal because attorneys know who that
individual is and who the obligation runs to. The court has
interpreted a beneficiary to be any discretionary beneficiary under
a trust. That interpretation will require attorneys to locate
beneficiaries who never receive any income or corpus of the trust,
including future unborn heirs. It is also unclear whether the
guardian of a minor has to be notified. The definition in SB 163
is designed to provide guidance to the practitioners and to the
courts.
TAPE 99-29, SIDE B
MS. CHAPMAN said she has personally been involved in litigation
that has focussed on this particular statute, in which the grantor
established a trust for the benefit of his surviving spouse. The
trust was registered and the two children were listed as contingent
beneficiaries to receive the corpus when the surviving spouse
passed away. The children were not notified of the existence of
the trust, which is consistent with the interpretation used by
practitioners throughout the state. Years later, a lawsuit ensued,
and the court decided the trustee had breached her obligation by
not notifying the discretionary beneficiary. When the discretionary
beneficiary was notified, a lengthy lawsuit ensued, and the trustee
was stripped of her obligations for doing what every practitioner
considered to be the proper interpretation of the statute.
However, the court disagreed.
SENATOR DONLEY asked whether the children had a survivor or
immediate interest in the trust.
MS. CHAPMAN answered they had a survivor interest, therefore the
trust could have been expended entirely for the benefit of the
surviving spouse which is a typical estate planning technique.
CHAIRMAN TAYLOR pointed out the children had an expectancy: first
they had to out-live the primary beneficiary, and then the trust
had to contain enough money to make it worthwhile.
MS. CHAPMAN said that is correct. She explained in this instance,
one of the children went to court and argued that the money was
improperly expended for the benefit of the surviving spouse. That
caused family disharmony and expensive and lengthy litigation. She
repeated the court needs guidance in the area of notification of
beneficiaries.
SENATOR DONLEY asked what guidance Ms. Chapman is proposing. MS.
CHAPMAN replied she is proposing that the current beneficiary be
defined as a person entitled to a mandatory distribution of income
or principal from a trust.
SENATOR DONLEY said that proposal cuts out the children. MS.
CHAPMAN clarified only for the purpose of notification when the
trust is established.
SENATOR DONLEY asked Ms. Chapman if she believes the children
should know. MS. CHAPMAN said she does not.
SENATOR DONLEY said he totally disagrees because the children have
a survivor's expectation of preservation of the corpus, and they
ought to be involved depending on how it is written. MS. CHAPMAN
said the problem is that most trusts are written to give the
surviving spouse sole discretion. A person with a mere expectancy
can cause the grantor's intent to be undermined when the contingent
beneficiaries are notified that the trust has been established and
a conflict ensues.
SENATOR DONLEY maintained SB 163 is designed to make things simple
for trust lawyers and to get around the intent of the grantors. He
pointed out the only reason a trust like that is created is to
benefit the children in the long run while maintaining support of
the spouse for his/her lifetime. He stated the corpus should be
preserved, otherwise the grantor would not bother to create a
trust, he/she would bequest the entire amount to the spouse.
MS. CHAPMAN responded some trusts are set up for that purpose, but
the majority of trusts are bypass trusts that are not set up for
the preservation of the corpus for the children. They are designed
primarily and solely for the benefit of the surviving spouse and
are used as an estate tax savings device.
Number 542
MS. CHAPMAN discussed additional aspects of SB 163, relating to the
rules regarding modification and revocation of trusts. At present,
Alaska has no statutory provisions regarding modification or
termination of trusts. The courts must look to the common law. SB
163 will allow the court to modify or terminate trusts under
certain stated rules. Many times, trusts need to be modified
because of unexpected events that arise after the trust is
established, particularly in cases in which a trust was established
for estate tax savings or for the care of minor children. For
example, a minor child may become disabled and unable to handle the
trust when he/she comes of age, however, under current law, the
trust cannot be modified. SB 163 will allow the court to modify
trusts if consistent with the grantor's intent.
SENATOR DONLEY asked whether Section 2 applies to all kinds of
trusts. MS. CHAPMAN answered Section 2 applies to all trusts.
SENATOR DONLEY said he cannot support this legislation.
Number 524
CHAIRMAN TAYLOR discussed a scenario in which a couple set up a
trust naming the surviving spouse as the beneficiary. The couple
established the trust to avoid probate, and with the intent that
the surviving spouse would use the money to live on, and that any
remaining money, if any, would be split among the children after
the spouse's death. If each spouse has stepchildren, the family is
set up for immediate litigation under current law. The
stepchildren's expectancy might lead them to dictate how the
surviving spouse spends his/her money. He said he would hate to
see a child be able to sue a parent over what should be left in the
estate.
MS. CHAPMAN said that is what happened in the case she referred to
earlier.
CHAIRMAN TAYLOR pointed out if a trust was set up assuring the
children a percentage of the estate, the children would be a
mandated beneficiary and would have to receive notification. If a
trust is not set up in that manner, the children are given an
expectancy only.
MS. CHAPMAN said the beneficiaries who have the expectancy are not
prevented from suing. SENATOR DONLEY indicated the beneficiaries
should not be prevented from knowing about the trust. The problem
is that notification for all trusts will be wiped out based on one
case. He noted Section 2 is not targeted toward the problem
identified in that case; it will undo notification for people who
reasonably should be notified and who should have a reasonable
expectation of survival of the corpus.
MS. CHAPMAN repeated a current beneficiary who is entitled to a
mandatory distribution will receive notice.
SENATOR DONLEY said Ms. Chapman is anticipating that the spouses
will write the children in as co-beneficiaries, which they do not
tend to do even though they do intend that the corpus survive. He
repeated he disagrees with this policy.
SENATOR DONLEY noted one has to have an estate valued at $650,000
before taxes become a problem and suggested that estates below that
value be excluded.
CHAIRMAN TAYLOR maintained $650,000 is below the value of the
average person's house on the hillside.
SENATOR DONLEY contended this bill will make life easy for tax
lawyers and that it would be much more fair to include a provision
allowing the grantor to specify the potential beneficiaries and to
waive the notification requirement within the trust document. He
repeated Section 2 goes too far.
Number 449
MARY ZEMP, an attorney with Faulkner Banfield, clarified that lack
of notification does not mean a beneficiary cannot get information
because trusts must be registered and anyone can look at the court
record. In the particular litigation referred to by Ms. Chapman,
MS. ZEMP explained the father, who set up the trust for his wife,
specifically stated it was not his intent to preserve the trust for
the benefit of the remainderman. Also, the trust specifically said
the trustee did not need to account to anyone other than the
surviving spouse. His daughter sued and each client spent at least
$200,000 in legal fees.
SENATOR DONLEY said we should make that the law rather than cutting
everyone out from the notification requirement.
MS. ZEMP said the trust may say the opposite.
CHAIRMAN TAYLOR asked how one is to know who the potential
beneficiaries could be and how they are to be notified.
SENATOR DONLEY replied a lot of them will be known up front, but
the law can be written so that the trustee must use his/her best
effort.
CHAIRMAN TAYLOR asked at what point the beneficiaries must be
notified. MS. ZEMP replied when the trust is established, Alaska
law requires that the trust be registered and that notification of
registration be sent to current beneficiaries. Alaska trusts can
be established for ten generations. Determining whether one made
a reasonable effort will give rise to litigation.
SENATOR DONLEY repeated that the law should require that the person
setting up the trust specify whether the purpose is to save the
corpus for future beneficiaries, such as children.
Number 408
DAVE SHAFTEL, a member of an informal group of estate planning and
business attorneys in Anchorage, made the following comments. His
group has participated in the drafting of SB 162, and is strongly
in favor of it, particularly the rule against perpetuities issue.
The rule was essentially abolished in previous legislation yet some
technical remnants remain, making the elimination of the rule
awkward. One example is with a charitable lead trust, a second
example is with trusts for children. SB 162 will clarify the
abolishment of the rule. The purpose of SB 163 is to provide a
statutory provision that allows for the reformation or termination
of trusts where their purposes are not being met. Sometimes the
intent of the person who created the trust cannot be met due to
mistake of facts, mistake of law, or changed circumstances. In
such cases, the trust needs to be changed. Many other states have
similar legislation. These provisions track the restatement of
trust and the Uniform Trust Act. He stated SB 163 will establish
good, solid law for the State of Alaska.
MR. SHAFTEL suggested, if the committee continues to have concerns
about the notification issue, the burden should be placed on the
party who drafted the trust to state, with an introductory phrase,
that unless the trust instrument states otherwise, the duty to
inform and account applies. That would allow the person who sets
up the trust, at the time it is drafted, to say he/she does not
want to put the burden to inform contingent beneficiaries or
remainder persons of the trust's registration. Current statute
provides that notification is a mandatory obligation so one cannot
draft around it. He noted the mandatory requirement places a
tremendous administrative burden on trustees and a way needs to be
found to alleviate that burden if the trustor so chooses.
Number 345
CHAIRMAN TAYLOR thanked Mr. Shaftel and asked him to contact
Senator Donley directly with his suggestions.
Number 338
RICH HOMPESCH, a Fairbanks attorney, said he agrees with the
comments of previous speakers about SB 162 and SB 163. He directed
his comments to Section 2, regarding the duty to account. He has
drafted many trusts since the Alaska Trust Act passed two years
ago. Most of his clients tell him they do not want the trustee to
go to the expense of notifying all of the beneficiaries of the
trust. Most clients only want the trustee to notify and account to
the individual who is receiving the current income and corpus.
When he informs his clients of the statute's mandate regarding
notification, it causes a lot of problems. As written, Section 2
contemplates that unless the trust otherwise specifies, the rule
requiring that all beneficiaries be notified applies.
CHAIRMAN TAYLOR asked Ms. Chapman if any judgment was rendered when
the case she referred to was settled. He questioned whether that
case will set precedent.
MS. CHAPMAN replied it is not precedential. No judgment was
rendered in that case; interlocutory orders were issued.
CHAIRMAN TAYLOR said the judge stepped out on a very thin reed and
does not realize the impact that type of decision may have across
the board on all kinds of documents. MS. CHAPMAN said she agrees,
and that the judge may have understood the ramifications after
having then seen how far that litigation continued on before it
finally settled. She stated she does believe Senator Donley's
concerns can be addressed with language allowing the grantor to
except the trustee from the mandatory requirement of notification.
CHAIRMAN TAYLOR said that would be far superior to what Mr.
Hompesch said people are now doing, that is drafting trust
documents that hold the trustee harmless from lack of enforcement
of the law.
Number 271
CHAIRMAN TAYLOR asked those interested in seeing this legislation
move to talk to Senator Donley about his concerns, and to update
Senators Torgerson and Halford as well. He hoped to get a quorum
on Wednesday. He thanked all participants for their input and
adjourned the meeting at 3:20 p.m.
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