SB 11-COMMUNITY PROPERTY TRUSTS  1:46:06 PM CHAIR CLAMAN announced that the next order of business would be SENATE BILL NO. 11, "An Act relating to community property and to community property trusts; and providing for an effective date." 1:46:24 PM SENATOR TOM BEGICH, Alaska State Legislature, as prime sponsor, introduced SB 11. He stated that the bill would address community property trusts and had been introduced in the previous legislature. He stated that the bill would provide a reinterpretation of the community trust laws established in 1998. He stated that the assumption has been trusts would include the appreciation of assets. He quoted former Representative Joe Ryan, who said, "When one of the partners dies, the basis for the value of the asset is that at which it was purchased and any appreciation of that on behalf of the estate." He stated that a recent court decision did not include appreciation in the valuation of assets. He stated that SB 11 would remove ambiguity and would more accurately reflect legislative intent. He added that there would be no impact on pending legislation, and the bill would include a provision to ensure no lawsuits occurring prior to the law taking effect would be impacted. 1:49:09 PM TREVOR BAILLY, Staff, Senator Tom Begich, Alaska State Legislature, on behalf of Senator Begich, prime sponsor, presented the sponsor statement [included in the committee packet] which read as follows [original punctuation provided]: Alaska is a state with favorable trust laws and favorable laws for property ownership between spouses. Alaska allows for "opt in" community property ownership between married spouses. Community property ownership can provide tremendous tax advantages to spouses. In Alaska, residents can enter into community property agreements, and residents and nonresidents can enter into Alaska community property trusts. This benefits the individuals entering these agreements, the trust industry of Alaska, increases deposits in Alaska banks and through the revenue generated by the formation of a new trust, the state. Community property is simply a way to own joint property. A common way to enter a community property agreement is in conjunction with one's spouse. Each party must elect into this agreement and the agreement provides, most commonly, equal ownership and management of specific property. Currently, community property has a significant tax advantage. When a spouse dies, community property is placed into a category that allows tax advantages when that property is sold. To realize these advantages, appreciation and income must be characterized as community property. The default rule has generally been that appreciation and income on community property will be characterized as community property, unless otherwise declared in the community property trust. Trust attorneys have attested to this interpretation, however recent court rulings have created an ambiguous understanding of this general criterion. This legislation, consistent with industry understandings of trusts, seeks to clearly define community property as including appreciation and income on community property. SB 11 establishes a clear definition of appreciation and income as community property, as intended by The Community Property Trust Act. Portions of this legislation also have a retroactive effective date of May 23, 1998. MR. BAILLY provided the sectional analysis [included in the committee packet] which read as follows [original punctuation provided]: Section 1. Clarifies intent of subsection (h) under AS 34.77.030 to ensure any financial gains directly related to appreciation of community property trusts are treated as community property unless legal trust documents clearly state otherwise. Section 2. Adds a new subsection under AS 34.77.030 to retroactively apply the above changes in statute to community property trust agreements established on or after May 23, 1998. This section also applies an existing statutory definition of "community property trust. " Section 3. Adds as a new uncodified law of the State of Alaska to ensure above changes do not impact court actions or proceedings that began before Section 1 of this Act takes effect. Section 4. Establishes a retroactivity date of Section 1 of this Act as May 23, 1998. Section 5. States Section 1 and Section are immediately effective upon passage of this legislation. 1:53:26 PM BILL PEARSON, Shareholder, Foley and Pearson, P.C., provided invited testimony in support of SB 11. He offered a brief biography, including his time as an attorney practicing estate planning. He stated that SB 11 would provide an important technical fix. 1:54:27 PM LINDA HULBERT, Registered Representative and Insurance Agent, New York Life, provided invited testimony in support of SB 11. She stated that her support is on behalf of her insurance clients. She shared that she has been in business in Alaska for over 30 years. She stated that the proposed legislation would be of benefit to her clients, as it would affect their wills and trusts. 1:55:53 PM MATTHEW BLATTMACHR, President and Chief Executive Officer, Peak Trust Company, provided invited testimony in support of SB 11. He echoed previous testimony and stated that SB 11 would be a technical and clarifying change to the law. SENATOR BEGICH disclosed that a member of his staff is a client of Ms. Hulbert. 1:57:25 PM REPRESENTATIVE VANCE asked why the bill would be retroactive to 1998. She questioned the effects from the intervening time. SENATOR BEGICH answered that the Alaska Community Property Act became effective on the 1998 date, and there has been an understanding the values of assets would appreciate over time. He stated that a recent court ruling created ambiguity regarding appreciation in the value of assets. He stated that the retroactive date would hold harmless the hundreds of thousands of individuals holding community property trusts, and any pending legal actions would not be affected by the passage of SB 11. REPRESENTATIVE VANCE referred to an excerpt of the document entitled, "SB 11 Supporting Document - Community Property Trust Act.pdf," [included in the committee packet,] which read as follows [original punctuation provided]: THE CONSEQUENCES OF THIS TRUST MAY BE VERY EXTENSIVE, INCLUDING, BUT NOT LIMITED TO, YOUR RIGHTS WITH RESPECT TO CREDITORS AND OTHER THIRD PARTIES, AND YOUR RIGHTS WITH YOUR SPOUSE BOTH DURING THE COURSE OF YOUR MARRIAGE AND AT THE TIME OF A DIVORCE. ACCORDINGLY, THIS AGREEMENT SHOULD ONLY BE SIGNED AFTER CAREFUL CONSIDERATION. IF YOU HAVE ANY QUESTIONS ABOUT THIS AGREEMENT, YOU SHOULD SEEK COMPETENT ADVICE. (c) A community property trust may not adversely affect the right of a child to support. REPRESENTATIVE VANCE asked for further explanation. SENATOR BEGICH answered that the language had been included in the original Act. He explained that it had been intended to inform parties of their obligations in entering a community trust. 2:01:51 PM REPRESENTATIVE EASTMAN questioned the status of the lawsuit which had prompted the filing of the proposed bill. SENATOR BEGICH deferred to the invited testifiers to provide a status of the court case. He added that, regardless of the status of the case, the bill was drafted so it would not affect any litigation pending prior to the effective date of the bill. MR. PEARSON pointed out that Phillips v. Bremner-Phillips, 477 P.3 626 (2020), had had a final judgment issued. He expressed the opinion that the case may have been remanded to the Superior Court of Alaska. CHAIR CLAMAN confirmed that the case is final, and it had not been remanded to the Superior Court of Alaska. REPRESENTATIVE EASTMAN asked whether ambiguity as this could be avoided in the future. SENATOR BEGICH answered that the language in the proposed legislation was developed as a direct result of the ambiguity which prompted the lawsuit. He added that former Representative Joe Ryan had testified that the assets could be sold, with gains realized without paying federal taxes. It was a statement of intent that the gains were intended to be part of appreciation [of assets.] 2:05:16 PM SENATOR BEGICH, in response to a question from Representative Kreiss-Tomkins, stated that the passage of the bill would not affect the case. If litigation was taken today, he posited, it would be based on the savings clause in current law. He stated that SB 11 would remove the ambiguity as to whether appreciation would be included. In response to a follow-up question, he stated that should the court case be brought after the passage of the bill, there would be a different outcome. 2:07:17 PM REPRESENTATIVE EASTMAN referred to the savings clause and, given the law would be changed, questioned how it would be applied retroactively. SENATOR BEGICH answered that the two clauses are deliberately drafted to change the law. He stated that, prior to the Phillips v. Bremner-Phillips case, the court had never previously interpreted these matters, and any litigation filed prior to the effective date of SB 11 would not be affected. He stated that the passage of SB 11 would demonstrate this had been the legislature's intent from the start. He added that he was unaware of any active litigation which would be affected by the interpretation of the associated law. 2:10:37 PM REPRESENTATIVE EASTMAN asked whether advice given to clients by attorneys based on flawed legislation would put clients at a disadvantage. SENATOR BEGICH referred to the invited testifier, who had demonstrated the advice given to hundreds of clients had been based on legislative intent, which is offered in SB 11. 2:13:04 PM CHAIR CLAMAN announced that SB 11 was held over.