SB 11-COMMUNITY PROPERTY TRUSTS  1:07:38 PM CHAIR CLAMAN announced that the only order of business would be CS FOR SENATE BILL NO. 11(JUD), "An Act relating to community property and to community property trusts; and providing for an effective date." REPRESENTATIVE EASTMAN asked for the status of any changes to federal regulations associated with marital trusts. 1:08:54 PM SENATOR TOM BEGICH, prime sponsor, Alaska State Legislature, stated that he was unaware of any federal actions pertaining to the proposed bill. He offered that the bill had been drafted in response to a court case which had identified ambiguity in existing statute pertaining to the appreciation of value. REPRESENTATIVE EASTMAN asked whether community property trusts are the same as grantor property trusts. SENATOR BEGICH deferred to invited testifiers. 1:10:06 PM ABIGAIL O'CONNOR, Attorney, O'Connor Law Office, LLC, answered that a community property trust is a grantor trust, but a grantor trust is not necessarily a community property trust. She added that a grantor trust is one for which the grantor is treated as the owner for income tax purposes. She stated that a grantor trust may be either irrevocable or revocable. She added that a community property trust, during the grantor's lifetime, is revocable, or for a living trust, the income is taxed to the grantors. REPRESENTATIVE EASTMAN asked whether grantor trusts have mandatory Internal Revenue Service (IRS) filings. MS. O'CONNOR answered that any income to the grantor's trust during the grantor's lifetime would be reported on the grantor's income tax return. She added that, following the death of the first grantor, part of the trust becomes irrevocable, then the irrevocable trust is "siphoned off" and may result in a separate filing requirement. She clarified that while both grantors are still alive, there is no separate return required. REPRESENTATIVE EASTMAN asked whether the initial formation of a trust would address any potential ambiguities regarding appreciation of assets. MS. O'CONNOR answered that, in a perfect world, yes. She speculated that practitioners [drafting trusts] assume that the statute included this. She added that some trusts were created without the inclusion of language regarding appreciation, with the assumption appreciation was considered. She stated that, should income and appreciation not be community property, then there is no point in having community property law in Alaska. SENATOR BEGICH stated that the comments offered by Ms. O'Conner were the reason the the bill was drafted and before the committee. He pointed out the intention of the original legislation was that income and appreciation should be included in community property. He stated that the proposed legislation would remove any ambiguity from the statute. 1:14:09 PM REPRESENTATIVE KREISS-TOMKINS asked for an explanation of the retroactivity in Section 1 of the proposed legislation. SENATOR BEGICH expressed the opinion that thousands of trust agreements were drafted with the assumption the appreciation and income would be a part of the trusts. He stated that when the court case occurred, the matter was called into question. He noted that a savings clause exists in the proposed legislation so any cases filed before the effective date would not be impacted, should it pass. REPRESENTATIVE KREISS-TOMKINS asked whether May 23, 1998, was the initial date of the original legislation. SENATOR BEGICH answered that it was exactly the date this became law. REPRESENTATIVE EASTMAN observed that it is rare for the legislative intent to be so clear, and this makes the process of considering the proposed legislation easier. REPRESENTATIVE KREISS-TOMKINS commented that he would be extremely cautious regarding trust-related legislation because of cases which have resulted in a "race to the bottom" for trust laws. He added that there has been flawed legislation previously introduced, which fortunately did not pass. He expressed the opinion that flawed legislation and its resulting "cottage industry" would be tantamount to making the rich richer. 1:18:18 PM REPRESENTATIVE SNYDER moved to report CSSB 11(JUD) out of committee with individual recommendations and the accompanying fiscal notes. There being no objection, CSSB 11(JUD) was reported out of the House Judiciary Standing Committee.