HOUSE BILL NO. 321 "An Act relating to trusts, to the prudent investor rule, and to standards of care applicable to personal representatives, conservators, and trustees; and providing for an effective date." DAVID PREE, STAFF, REPRESENTATIVE JOE RYAN, stated that the Uniform Prudent Investor Act would reverse common law rules that restrict the investment powers of trustees. The new act would require a trustee to invest as a prudent investor would, using reasonable care, skill and caution in light of the objectives and risk tolerance of the individual trust. Diversification of assets is an obligation. Trustees can delegate investment responsibilities to experts. Within the scope of these powers and duties, trustees can choose to invest in any kind of asset that meets the objective of the specific trust. Co-Chair Therriault acknowledged that the bill would add new verbiage as recommended by the Uniform Law Commission. RICHARD THWAITES, PRIVATE ATTORNEY, ALASKA TRUST CORPORATION, ANCHORAGE, testified in support of the legislation. The purpose of the Uniform Act was to bring Alaska in line with the rest of the states. Like the Uniform Commercial Code, which made businesses able to deal from one state to another, the bill would allow fiduciaries in each of the states to rely on consistency in Alaska Law. The Alaska Law currently, is not the Uniform Act. The Uniform Prudent Investor Act changes and unifies the investment standard throughout the country by providing more flexibility. The new act would allow the fiduciary to select the standard appropriate for the beneficiary. (Tape Change HFC 98- 55, Side 1). Mr. Thwaites continued, the legislation would standardize the language while at the same time providing the leeway necessary to allow the trustee to customize the investment plan for a particular person. Representative Kelly questioned language used on Page 3, Line 4, asking if it would become more "risky" when more wealth was involved. Mr. Thwaites commented that the risk would have to be in line with the amount of money available. The normal investment standard would require only a fractional share of high-risk investment versus the other. "Other resources of the beneficiaries" relates to situations where there might be children in a family with developmental disabilities. There could be a greater distribution to the child with the disability. The language opens the flexibility for the fiduciary to make those kinds of decisions on distribution. Representative Kelly questioned the language on Page 4, Line 16. Mr. Thwaites noted that language indicated in section (a) that the trustee "shall" not "may" exercise reasonable skill and caution in selecting an agent. Representative Kelly asked if section (b) would relate to section (d). Would the agent need to be bonded. Mr. Thwaites explained that in the bank licensing process, most of the probate codes require bonding unless the entity acting as the fiduciary is either exempt from the statute or they have some other type of insurance protection. Representative Kelly understood that section (c) would require that someone bonded would be obligated. Representative Kelly inquired if the current prudent standards are now a problem. Mr. Thwaites replied that they have been. There have been in some estates, certain assets which were not trust quality, and they were required to be liquidated, against the families wishes. That action resulted because the prudent standards, which currently exist, require the fiduciary to have a certain number of assets to qualify, even though the family might want the assets to be maintained. Representative J. Davies asked about the prohibition of the review. Mr. Thwaites noted that the bill would require a standard of care for the fiduciary to review decisions. If there is a conflict between trusts, the proposed act would provide more freedom to make exceptions under the right case. Independent approval should be obtained. Mr. Thwaites added that the legislation would require that there be an evaluation if a conflict exists. They would be required to look at the beneficiaries of both trusts to make sure that there was equal treatment. Representative J. Davies reiterated concern that by being the manager of a trust, under the prudent person rule, there is a duty to manage both trusts for the benefit of the beneficiaries. If a person was in the business of selling one trust for another, there would be an apparent conflict of interest which could result in a determent in one trust and a benefit to the other trust. Mr. Thwaites explained that the conflict concern before was too strict; this legislation has chosen to give the discretion and liability to the trustee. Mr. Thwaites continued, common law has reinforced stricter standards. Most of the conservative fiduciaries around the country have a list of trust quality assets, which excludes common trust funds and mutual funds. In response to Representative Mulder, Mr. Thwaites said that the settler of a trust could establish specific standards in the trust that are wider than what was contained under the prudent man rule. That has been narrowed over the years. The typical minimum rate charge in Alaska to manage a trust account is around $1000 dollars per year or .75% of the account value, whichever is greater. STEVE NOEY, DIRECTOR, ALASKA TRUST COMPANY, ANCHORAGE, voiced support for the purposed legislation. Representative J. Davies pointed out that language on Page 2, Line 11-14, indicates that the prudent investor rule is the default rule; it would be expanded or eliminated by provisions of the trust and the trustee would not be liable. He voiced concern with the possibility of eliminating the prudent investor rule. Mr. Thwaites stated that any court would repeal that rule if it was not appropriately requested. Representative J. Davies asked if there were situations, which might not be prudent. He struggled with use of the word "eliminated". Mr. Thwaites ascertained this was how the standard had been developed. The term fiduciary means that you look after the other party's interest more than you would look after your own. The bill addresses only the investment standards. The legislation is an attempt to open the door, providing as much flexibility as possible, for the planners. HB 321 was HELD in Committee for further consideration.