Legislature(1999 - 2000)
05/12/1999 02:42 PM Senate JUD
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SENATE JUDICIARY COMMITTEE
May 12, 1999
2:42 p.m.
MEMBERS PRESENT
Senator Robin Taylor, Chairman
dSenator Dave Donley
Senator Johnny Ellis
MEMBERS ABSENT
Senator John Torgerson
Senator Rick Halford, Vice-Chairman
COMMITTEE CALENDAR
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."
-MOVED CSSB 162(JUD) OUT OF COMMITTEE
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
SENATE BILL NO. 165
"An Act relating to the remedies available to judgment creditors
against limited liability company members and their assignees and
against limited partnership general and limited partners and their
assignees; and providing for an effective date."
-MOVED SB 165 OUT OF COMMITTEE
SENATE BILL NO. 166
"An Act relating to the amendment and revocation of spouses'
community property agreements and community property trusts; and
providing for an effective date."
-MOVED SB 166 OUT OF COMMITTEE
CS FOR HOUSE BILL NO. 177(HES)
"An Act relating to foster parents; relating to the right of foster
parents to have notice of, and testify at, delinquency hearings and
to the disclosure of minors' records to foster parents; and
amending Rules 3, 7, 10, 12, 21, 23, and 25, Alaska Delinquency
Rules."
-MOVED CSHB 177(HES) OUT OF COMMITTEE
PREVIOUS SENATE COMMITTEE ACTION
SB 162 - See Judiciary Committee minutes dated 5-3-99 and 5-11-99.
SB 163 - See Judiciary Committee minutes dated 5-3-99 and 5-11-99.
SB 165 - See Judiciary Committee minutes dated 5-11-99.
SB 166 - See Judiciary Committee minutes dated 5-11-99.
HB 177 - No previous Senate action.
WITNESS REGISTER
Steve Noye
Alaska Trust Company
1029 W 3rd Ave.
Anchorage, AK
POSITION STATEMENT: Supports SB 163
Mr. Rich Hompesch
119 N. Cushman Suite 400
Fairbanks, AK 99701
POSITION STATEMENT: Testified in support of SB 162 and SB 163
Mary Ellen Beardsley
Assistant Attorney General
Department of Law
1031 W 4th Ave., Suite 200
Anchorage, AK 99501-1994
POSITION STATEMENT: Answered questions regarding SB 166
Representative Fred Dyson
Alaska State Capitol
Juneau, AK 99801-1182
POSITION STATEMENT: Sponsor of HB 177
ACTION NARRATIVE
TAPE 99-32, SIDE A
Number 001
CHAIRMAN ROBIN TAYLOR called the Judiciary Committee meeting to
order at 2:42 p.m. Present were Senators Donley, Ellis, and
Chairman Taylor. The first order of business to come before the
committee was SB 163.
SB 163-TRUSTS AND TRUSTEES
STEVE NOYE, Director of, and lobbyist for, the Alaska Trust
Company, made the following comments. SB 163 contains corrections
to the Alaska Trust Act. Most of the corrections have been taken
from the Uniform Trust Act, and deal with modification and
termination of trusts. The issue of most concern to committee
members is the requirement to inform beneficiaries of the trust's
registration. The Uniform Trust Act addresses that issue by
stating "the result of this limitation is that the information need
not be furnished to beneficiaries with remote, remainder
interests." That is why the term "current beneficiaries" was used
to distinguish that beneficiaries who are immediately to receive
funds must be notified. Beneficiaries with remote, remainder
interests are any people that may receive funds in the future, i.e.
children, grandchildren, great-grandchildren. If minors were
required to be informed, the court could appoint a guardian ad
litem to represent the minor for up to 21 years, at the expense of
the trust.
SENATOR DONLEY noted he disagrees with the concept that the
requirement to notify future beneficiaries of trusts should be
eliminated. He said he believes they deserve to be notified unless
they are specifically excluded from notification in the trust
document.
Number 065
MR. NOYE said to Senator Donley the crux of the matter is how a
trustee could go about notifying people who have not yet been born.
SENATOR DONLEY remarked SB 163 changes current law which has been
in existence for quite awhile. He asked when it was last changed.
MR. NOYE said the law has not been changed, however when the
Legislature enacted the Alaska Trust Act, the lifetime of a trust
was affected by the elimination of the rule against perpetuities,
which, in Alaska, was 90 years.
CHAIRMAN TAYLOR clarified that under the old Alaska Trust Act, the
trustee had to locate beneficiaries because it applied to 90 years
plus lives in being. The grantor had to specify who those lives in
being were to make the trust valid or it would fail in less time.
Usually, a grantor would name the youngest grandchild to maximize
the trust's duration; the trust could exist for 90 years after the
youngest grandchild's death. Now, with the abolishment of the rule
against perpetuities, the trust can last forever.
SENATOR DONLEY noted he has no problem with SB 162, SB 165 and SB
166, but his concerns about SB 163 remain. He suggested putting SB
163 aside.
CHAIRMAN TAYLOR agreed and announced SB 162 to be up for
discussion. He informed committee members a proposed committee
substitute had been prepared and explained the changes as follows.
On page 2, language on lines 22-25 was rewritten for the
purpose of clarification.
SENATOR ELLIS moved to adopt the proposed committee substitute
(work draft Bannister, 5/12/99) as the working document of the
committee. There being no objection, the motion carried.
Number 135
RICH HOMPESCH, a Fairbanks attorney, explained the language on page
2, which also appears on page 3, lines 1-3, was rewritten because
it said, "a general power of appointment is invalid unless...."
The new language clarifies that under existing law, powers of
appointment that were created after January 1, 1996, up until the
passage of this bill, cannot be changed.
CHAIRMAN TAYLOR noted that provision applies to the window of
opportunity in which trusts were created during that time period.
MR. HOMPESCH indicated the same change appears on page 2, lines 12-
13.
SENATOR DONLEY asked for a brief description of the contents of
CSSB 162(JUD).
MR. HOMPESCH stated prior to the Alaska Trust Act, Alaska law
limited the duration of a trust to a life in being plus 21 years,
which was eventually changed to 90 years. The Alaska Trust Act
provides that if a trustee pays the income or principal to a living
person when the trust is created, the duration can be forever.
This bill eliminates the requirement that the income or principal
be paid out to a living person when the trust is created before the
trust can be perpetual so that charitable lead trusts, in which the
income of the trust is paid to a charitable organization rather
than a live person, can exist in perpetuity.
Number 197
SENATOR ELLIS moved CSSB 162(JUD) from committee with individual
recommendations. There being no objection, the motion carried.
Number 208
SB 165-LTD PARTNERSHIPS AND LTD. LIAB. COMPANIES
MR. RICH HOMPESCH, a Fairbanks attorney, explained SB 165 provides
that creditors of a limited partnership, or creditors of a member
of an LLC, have only one remedy when seeking to attach the member
or the limited partner's interest in the entity. That remedy is a
charging order. Most people interpreted the law that way, however,
a recent Connecticut court decision allowed a creditor to foreclose
on the member's, or the limited partner's, interest. That creates
a hardship to the other members of the limited liability company or
the limited partnership because they suddenly have a new partner,
which in most cases is very detrimental to the business.
SENATOR DONLEY asked what a charging order is.
MR. HOMPESCH replied a charging order gives the judgment creditor
the right to receive all of the distributions that would have
otherwise been paid to the member or the limited partner.
SENATOR DONLEY said it sounds like an assignment of interest.
CHAIRMAN TAYLOR indicated it is the same thing.
CHAIRMAN TAYLOR asked what rights the change in the law would give
to the creditor.
MR. HOMPESCH answered the creditor will receive all of the
distributions from the limited liability company or the limited
partnership.
CHAIRMAN TAYLOR asked if the creditor would be able to force a sale
or liquidation. MR. HOMPESCH said that is correct.
SENATOR DONLEY asked if all distributions go to the creditor. MR.
HOMPESCH explained if each of four partners had a 25 percent
interest, and one partner had a creditor with a charging order, 25
percent of the distributions would be paid to the creditor.
SENATOR DONLEY moved SB 165 from committee with individual
recommendations. There being no objection, the motion carried.
SB 166-COMMUNITY PROPERTY AGREEMENT/TRUSTS
CHAIRMAN TAYLOR informed committee members the Legislature passed
legislation two years ago that gave spouses the right to elect to
enter into a community property agreement for their trusts or
estates.
MR. STEVE NOYE, director of, and lobbyist for, the Alaska Action
Trust, told committee members a Wisconsin court recently claimed
the transfer was a gift, as opposed to allowing the double step-up
in basis, which is a tax free exchange. SB 166 will prevent a
court from claiming that a transfer is a gift as opposed to a non-
taxable transfer.
SENATOR DONLEY asked Mr. Noye what transfer he was referring to.
CHAIRMAN TAYLOR noted the bill refers to a transfer of property
upon death.
MR. NOYE stated community property states have a double step-up in
basis, meaning when one spouse dies, the whole estate is revalued
at current market value in a separate property estate, only the
decedent's part of the estate is stepped up to current market value
and the surviving spouse pays whatever the original basis was.
SENATOR DONLEY questioned whether that is determined by federal tax
law. MR. NOYE said that is correct.
CHAIRMAN TAYLOR asked if the federal tax law is controlled by the
state's interpretation of the definition of the property. MR. NOYE
said that is correct.
CHAIRMAN TAYLOR asked if, under Alaska law, the deceased partner's
portion of the estate is evaluated at the date of death at the
stepped up basis and then is conveyed to the spouse; the spouse's
basis remains the same until she dies, at which time the basis is
stepped up before it is conveyed, resulting in a higher tax rate
for the heir.
Number 303
MARY ELLEN BEARDSLEY, Department of Law, said that is correct,
assuming the party held on to the property all of this time.
CHAIRMAN TAYLOR noted if the surviving spouse sold the property,
he/she would not have to pay a lot of capital gains taxes.
MS. BEARDSLEY indicated that SB 166 will allow the surviving spouse
to amend the community property agreement only as it pertains to
the property she placed into the agreement.
MR. HOMPESCH agreed with Ms. Beardsley and said SB 166 does allow
the surviving spouse to make changes to her half of the trust or
the community property agreement.
CHAIRMAN TAYLOR said he thought that if the spouse did not have
that ability, he/she would be violative of the holding in the tax
court.
SENATOR DONLEY moved SB 166 from committee with individual
recommendations. There being no objection, the motion carried.
Number 371
HB 177-FOSTER CARE & DELINQUENT MINORS
REPRESENTATIVE FRED DYSON, sponsor of HB 177, informed committee
members HB 375 passed the Legislature in the last hours of the
session. An amendment to HB 375 to allow foster parents access to
the criminal and behavior records of foster children, a place at
the table when treatment plans are being developed, and a voice in
court was adopted but inadvertently applies to Child In Need of Aid
children only, not to delinquent children.
CHAIRMAN TAYLOR asked Representative Dyson if there is anything he
dislikes about the bill. REPRESENTATIVE DYSON said no.
SENATOR ELLIS moved CSHB 177(HES) from committee with individual
recommendations. There being no objection, the motion carried.
There being no further business to come before the committee,
CHAIRMAN TAYLOR adjourned the meeting at 2:05 p.m.
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