SB 225-TRUSTS; TRUST PROCEEDINGS; TRUSTEES  1:54:06 PM CHAIR BJORKMAN reconvened the meeting and announced the consideration of SENATE BILL NO. 225 "An Act relating to trusts; relating to trust proceedings; relating to nonjudicial settlement agreements in trust matters; relating to the powers of trustees; and providing for an effective date." 1:54:32 PM ANNA LATHAM, Deputy Commissioner, Department of Commerce, Community and Economic Development (DCCED), Juneau, Alaska, introduced SB 225 on behalf of the sponsor and read the following: [Original punctuation provided.] This is an act relating to trust proceedings relating to non-judicial settlement agreements and trust matters relating to the power of trustees and providing for an effective date. The Department of Commerce is committed to making Alaska a great place to do business and grow our economy. Through our Alaska Business Initiative, we're promoting Alaska as the best place to invest, live, and work. We're constantly reviewing our processes, our statutes, and our regulations to make it easier to start and operate a business in Alaska. With that goal in mind, Commissioner Sandy and I asked our banking and securities team to review our trust statute last summer and make recommendations for improvement. While Alaska's already a strong competitor for trust charters, we currently only have four trust companies, meaning there's room for growth. Working together with the Department of Law, the banking and securities team developed several recommendations to strengthen Alaska's legal framework for chartering trusts. SB 225 strengthens Alaska Trust Law by improving privacy protections, expanding non-judicial settlement authority, or the ability for parties to settle without going to court, clarifying fiduciary powers, broadening our decanting statutes, or ability to move assets to a new trust without court approval, and it provides for stronger asset protection by shortening creditor look-back periods and strengthening anti- fraud measures. SB 225 improves Alaska's trust law by increasing flexibility, efficiency, privacy, and certainty for settlers, beneficiaries, and fiduciaries. And it reduces the administrative and litigation costs while preserving accountability. And tying this back to our economy, bringing out a state wealth into Alaska management increases the demand in Alaska financial sector and eventual growth. 1:57:00 PM TRACY RENO, Director, Division of Banking and Securities (DBS), Department of Commerce, Community and Economic Development (DCCED), Juneau, Alaska, provided the sectional analysis for SB 225. She stated that a trust is a legal arrangement where a trustee manages assets on behalf of beneficiaries and is commonly used for estate planning during life and after death. SB 226 includes technical language reflecting Alaska's unique trust laws. 1:58:07 PM CHAIR BJORKMAN asked if she could provide real-world examples of how this would apply, to help clarify and make it more relatable. 1:58:29 PM MS. RENO replied that the division regulates Alaska-chartered trust companies but does not handle detailed legal drafting, which falls to the Department of Law. SB 225 modernizes outdated trust laws, enhances privacy and competitiveness with other states, and supports uses such as family trusts to manage and protect wealth across generations. 1:59:35 PM MS. RENO paraphrased the sectional analysis for SB 225: [Original punctuation provided.] Sectional Analysis, Version A Section 1 Amends AS 13.36.035 (Court jurisdiction; choice of law) to add a new subsection (j) that requires the court to protect the privacy of a settlor and the beneficiaries of a noncharitable trust in trust proceedings by sealing all court records upon the filing of a petition and limiting access to listed persons. Section 2 Amends AS 13.36 (Trust Administration) by adding a new section AS 13.36.057 (Nonjudicial settlement agreements) to allow "indispensable parties" to enter into a binding nonjudicial settlement agreement with respect to any trust administration matter, explicitly including the proceedings described in AS 13.36.035(a). A nonjudicial settlement agreement is valid only to the extent it does not violate a material purpose of the trust and includes terms and conditions that could be properly approved by a court. The section includes a list of matters that may be resolved by a nonjudicial settlement agreement including the investment and use of trust assets, direction to a trustee to perform or refrain from performing a particular act, termination of the trust, etc. It includes subsections that allow indispensable parties to petition the court for approval of a nonjudicial settlement agreement and to allow a trustee to give notice under proposed AS 13.36.115 (Section 4). Section 3 Amends AS 13.36.079 (Certification of trust; penalty) subsection (j) to clarify that the right to obtain a copy of the trust instrument in a judicial proceeding concerning the trust is subject to AS 13.36.035(j). Section 4 Amends AS 13.36 (Trust Administration) by adding a new section AS 13.36.115 (Notice of proposed action; fiduciary liability). The proposed section creates a procedure wherein a "fiduciary" may provide notice to specific beneficiaries (as described in subsection (b)) of a proposed trust administration action that is contemplated under the terms of the governing instrument of a trust or AS 13.36. The section creates requirements for the contents of a notice of proposed action, which must include a description of the proposed action and the time period for a beneficiary to provide written objection. Importantly, it limits the liability of a fiduciary that takes action in accordance with the notice, if the notice is issued in compliance with the section, if no beneficiary objects, and if the action is not a breach of fiduciary duty. It defines "fiduciary" to mean a trustee or a trust protector or trust adviser acting within the scope of authority granted to the trust protector or trust adviser in the governing instrument. 2:01:40 PM MS. RENO continued with the sectional analysis for SB 225: [Original punctuation provided.] Section 5 Amends AS 13.36.157 (Exercise of power of appointment) subsection (a) to provide that an authorized trustee with discretionary power to distribute all or part of the trust principal to or for a current beneficiary, which power is not limited by an "ascertainable standard," may appoint part or all of that principal to a trustee of an appointed trust for the benefit of a beneficiary of the invaded trust. "Ascertainable standard" is defined in section 20. SB 225 Sectional Analysis (Version A) 1.28.26 2 Section 6 Amends AS 13.36.157 (Exercise of power of appointment) subsection (b) to clarify that a permissible appointee may include (1) a person that is not a beneficiary of the invaded trust; (2) a holder of a power of appointment; or (3) the estate or a creditor of a holder of a power of appointment. Section 7 Amends AS 13.36.157 (Exercise of power of appointment) subsection (c) to clarify that under (a) and (b) of this section, if the beneficiaries of the invaded trust are described by a class, the beneficiaries of the appointed trust may include present or future members of that class except that a person may not become a beneficiary sooner than as provided in or authorized by the invaded trust. 2:02:39 PM MS. RENO continued with the sectional analysis for SB 225: [Original punctuation provided.] Section 8 Amends AS 13.36.157 (Exercise of power of appointment) subsection (d) to provide that an authorized trustee with discretionary power to distribute all or part of the trust principal to or for a current beneficiary, which power is limited by an "ascertainable standard," including a beneficiary trustee, may appoint part or all of the principal of the trust to a trustee of an appointed trust if the current beneficiaries of the appointed trust are the same as the current beneficiaries of the invaded trust and the successor and remainder beneficiaries of the appointed trust are the same as the successor and remainder beneficiaries of the invaded trust. Section 9 Makes a conforming amendment to AS 13.36.157 (Exercise of power of appointment) subsection (e) by inserting the word "ascertainable" before the word "standard" and clarifies that an authorized trustee may change the distribution standard if the trustee appoints to an appointed trust that is a special needs trust, a pooled trust, or a third-party trust. Section 10 Amends AS 13.36.157 (Exercise of power of appointment) subsection (g) to update the subsection citations to conform with the repeal of AS 13.36.157(f) in Section 24 of the bill. Section 11 Amends AS 13.36.157 (Exercise of power of appointment) subsection (h) to provide accurate subsection citations and to clarify that the appointed trust must grant the same power of appointment as in the invaded trust while repealing language requiring the class of permissible appointees to remain the same. Section 12 Amends AS 13.36.157 (Exercise of power of appointment) by adding a new subsection (i) that states an authorized trustee exercising the power under (a) of this section which is not limited by an ascertainable standard may (1) establish an ascertainable standard for the distribution of income that is a different standard from the standard in the invaded trust, (2) appoint the principal of the invaded trust to an appointed trust that is a special needs trust, pooled trust, or third-party trust, and (3) subject to restrictions in AS 13.36.158(i)(1), reduce a beneficiary's right to a mandatory distribution of income or principal. 2:03:52 PM MS. RENO continued with the sectional analysis for SB 225: [Original punctuation provided.] Section 13 Repeals and reenacts AS 13.36.158 (Additional provisions relating to exercise of a power of appointment) subsection (c) to state if more than one authorized trustee has discretionary power to distribute all or part of the trust principal, an authorized trustee with discretionary power that is not limited by an ascertainable standard may exercise the power under AS 13.36.157(a) (c) and (i). Section 14 Amends AS 13.36.158 (Additional provisions relating to exercise of a power of appointment) subsection (e) by deleting requirements related to ascertaining a settlor's intent and retaining the best interests and prudent person requirements applicable to a fiduciary that exercises an appointment power. Section 15 Amends AS 13.36.158 (Additional provisions relating to exercise of a power of appointment) subsection (i)(1) to simplify limitations on an authorized trustee's exercise of an appointment power by clarifying that an authorized trustee may not exercise a power authorized by AS 13.36.157 to reduce, limit, SB 225 Sectional Analysis (Version A) 1.28.26 3 or modify a beneficiary's current right to a mandatory distribution of income, annuity, or unitrust interest for which a marital deduction has been taken for federal tax purposes under 26 U.S.C. 2056 or 26 U.S.C. 2523 (Internal Revenue Code) or for state tax purposes under a comparable provision of state law. The amendment would also repeal other specific prohibitions and repetitive language related to appointment to a special needs trust, pooled trust, or third-party trust. Section 16 Amends AS 13.36.159 (Implementation of power of appointment) subsection (c) by clarifying that when an authorized trustee seeks court approval to exercise a power of appointment, the trustee has the option to send the required notice to all qualified beneficiaries to a person who can represent and bind a qualified beneficiary under AS 13.06.120. 2:05:32 PM MS. RENO continued with the sectional analysis for SB 225: [Original punctuation provided.] Section 17 Amends AS 13.36.159 (Implementation of power of appointment) subsection (d) by adding the word "executed" before the reference to "the appointed trust" and "the instrument exercising the power." Section 18 Amends AS 13.36.215 (Definitions) subsection (b)(1) by clarifying that an "appointed trust" may include a new irrevocable trust created by the settlor of the invaded trust, by another person, or by an authorized trustee acting in that capacity, of the invaded trust or a restatement or modification of the invaded trust. Section 19 Amends AS 13.36.215 (Definitions) subsection (b)(2) to clarify that the definition of "authorized trustee" means a trustee or fiduciary, other than the settlor, with the power to distribute all or part of the trust principal to or for a current beneficiary. Language repealed from the definition allows a beneficiary to be an authorized trustee. Section 20 Amends AS 13.36.215 (Definitions) subsection (b) by adding definitions for "ascertainable standard" and "beneficiary." Section 21 Amends AS 13.36.370 (Trust protector) subsection (b) to provide that a trust protector's powers, as conferred by the trust instrument, may include the power to issue a notice of proposed action under AS 13.36.115. Section 22 Amends AS 34.40.110 (Restricting transfers of trust interests) subsection (d) to reduce the amount of time for creditors of a settlor to bring a cause of action or claim for relief alleging fraudulent transfer of assets to a trust. Subsection (d)(1) applies to creditors of a settlor existing before assets are transferred into trust and reduces the time to bring an action from four years to one year after the transfer is made and from one year to six months after the creditor discovered or reasonably could have discovered the transfer. Subsection (d)(2) applies to a person who becomes a creditor of the settlor after assets are transferred into trust and reduces the time frame to bring an action from four years to one year after the transfer is made. Section 23 Amends AS 34.40.110 (Restricting transfers of trust interests) subsection (i) to clarify that the settlor's solvency affidavit is required at the time of initial funding of the trust. It additionally clarifies that after initial funding, the settlor may periodically renew the affidavit to include additional transfers of assets to the trust, however the settlor is presumed to be solvent with respect to these transfers. Section 24 Repeals AS 13.36.157(f), AS 13.36.159(i), and AS 13.36.215(b)(10). SB 225 Sectional Analysis (Version A) 1.28.26 4 Section 25 States the uncodified law of the State of Alaska is amended by adding a new section to clarify that AS 13.36.157, AS 13.36.158, AS 13.36.159, and AS 13.36.215, as amended by this Act, apply to a trust that is created on or after the effective date of this Act. Section 26 Provides an immediate effective date for this Act. 2:09:38 PM SENATOR DUNBAR asked what ascertainable means in the context of SB 225, Section 9. 2:09:56 PM MS. LATHAM deferred the question to Amy Robinson, with the Department of Law. 2:10:17 PM AMY ROBINSON, Senior Assistant Attorney General, Department of Law, Anchorage, Alaska, answered questions regarding SB 225. She said the term "ascertainable" is added before "standards" to align with the definition in SB 225, Section 20, line 15. It refers to provisions in a trust that guide how a trustee may distribute the trust's principal or income. 2:11:15 PM SENATOR DUNBAR asked what does adding "ascertainable" in Section 9 change, and what is the practical difference between "the same standard authorizing trustee to distribute the income" and "the same ascertainable standard authorizing trustee distribute income." 2:11:45 PM MS. ROBINSON replied that Section 9 adds the term "ascertainable standard" as a conforming amendment to align with the new definition in Section 20. She said under AS 13.36.157, trustees with limited discretion must comply with existing distribution standards when exercising decanting powers, while trustees with broader discretion under AS 13.36.157(a) are not subject to those limits. 2:14:08 PM SENATOR DUNBAR stated that SB 225, Section 2 expands the ability for parties to enter agreements without court involvement and asked whether the court has any perspective on how that change might affect the public. 2:14:38 PM NANCY MEADE, General Counsel, Alaska Court System, Anchorage, Alaska, answered questions regarding SB 225. She replied that non-judicial settlement agreements are generally allowed because parties are able to resolve disputes without court involvement. She supported allowing parties to work out issues outside of court, noting that SB 225 still permits a party to seek court approval of an agreement if needed, which appears as a reasonable provision. 2:15:20 PM SENATOR DUNBAR stated that in other settlements, courts may reject agreements they find unfair or unlawful, such as those involving a power imbalance. He asked if there is concern that similar issues could arise without court review. 2:15:54 PM MS. MEADE replied that Section 2, page 3, lines 3 through 5, allows parties to reach agreements outside of court before any case is filed and then optionally seek court approval afterward. The section does not require prior court involvement, which the speaker views as a sensible approach. 2:16:43 PM CHAIR BJORKMAN asked if the Department of Law had any concerns with SB 225. 2:16:48 PM MS. MEADE replied that she has discussed a few minor changes with the Department of Law and is working through whether they are acceptable without affecting the policy of the bill. 2:17:21 PM SENATOR DUNBAR said regarding Section 1 on the privacy of the settler and beneficiaries, and the discussion of generational wealth, can the department provide examples of other states that have similar provisions and how common this approach is. 2:17:54 PM MS. LATHAM replied that she is aware of Wyoming and South Dakota having similar provisions. SENATOR DUNBAR asked whether she thinks most states have the provisions found in SB 225. MS. LATHAM replied that she is not aware whether most states have these provisions; however, the states that do tend to remain more attractive for establishing trusts because they offer greater privacy. 2:18:27 PM SENATOR DUNBAR asked when she says, "personal privacy," what specifically does that mean, and what information that is typically public is kept private. 2:18:40 PM MS. LATHAM replied that she will defer to the Department of Law, but generally, filings are public and sealing them would make those records unavailable to the public. SENATOR DUNBAR asked Ms. Robinson what specific information is protected, such as the amount of money in the trust and which is typically public in court, or does the provision seal other types of information. 2:19:40 PM MS. ROBINSON replied that the information made confidential would primarily relate to actions under AS 13.36.035(a), which are protected under the new provision. She said financial details and trust assets involved in a court action are shielded. This typically applies to irrevocable trusts, often involving significant family wealth, where parties seek to resolve disputes privately. 2:21:07 PM SENATOR DUNBAR expressed concern that shielding trust information could reduce transparency around large transfers of wealth. He suggested considering a dollar threshold so smaller trusts remain private while larger ones are subject to public disclosure. 2:23:26 PM SENATOR YUNDT commented that some states make trust business attractive by protecting privacy. He opined that people may choose to establish trusts in those states if Alaska limits privacy based on dollar thresholds 2:24:07 PM CHAIR BJORKMAN asked why it's in the state's interest for people to file trusts in Alaska. 2:24:17 PM MS. LATHAM replied that it positions Alaska as a more attractive place for investment, aligning with efforts to expand economic activity and grow the financial sector. She said attracting large amounts of wealth could also bring related services, such as banking, legal, and other highly skilled professions, supporting broader economic development. 2:25:11 PM SENATOR DUNBAR asked whether the trusts that are established in Alaska are required to spend distributions within the state. 2:25:23 PM MS. LATHAM deferred the question to the Department of Law. 2:26:08 PM MS. ROBINSON replied that it's her belief that there is a requirement to spend funds in Alaska and that a certain amount of assets are held in the state. She said she is unsure of the specifics. 2:26:48 PM CHAIR BJORKMAN held SB 225 in committee.