HB 287-UNIFORM ACT: PROPERTY INTEREST DISCLAIMER  4:37:39 PM CHAIR OLSON announced that the next order of business would be HOUSE BILL NO. 287, "An Act relating to the adoption of the Uniform Disclaimer of Property Interests Act, and to the disclaimer of property rights under the Uniform Probate Code." 4:37:45 PM REPRESENTATIVE MAX GRUENBERG, Alaska State Legislature, speaking as one of the joint prime sponsors, stated that this bill will update the Uniform Disclaimer of Property Interests Act. A provision in the Uniform Probate Code is repealed and is replaced with the Act. The purpose of the Act is to set out the rules for a disclaimer, a concept that is used in probate of estates and trusts. He related that if someone inherits money, or money is placed in a trust for the person, the party may decide not to take money and suffer the tax consequences. In that instance, the money will go to the next person in line, usually a person in the family. He identified that this is called a disclaimer. This bill is fairly technical and updates or modernizes the disclaimer. The bill has been drafted by the Commissioners on Uniform State Laws. The Alaska trust attorneys have made some changes to comport with Alaska law. He suggested one amendment will be offered in the next committee of referral, the House Judiciary Standing Committee. He referred to page 4, lines 16-19, will be replaced by the Uniform Acts provision. He paraphrased from the sponsor statement, which follows [original punctuation provided]: HB 287 is a comprehensive collection of rules outlining the types of property interests eligible for disclaimer, the process by which property interests may be disclaimed, and the effect of a disclaimer on the interest itself. The Uniform Disclaimer of Property Interests Act was promulgated in 1999 and has already been adopted in 16 other states. There do not appear to be any reported court cases construing this Act. There have been several law review articles discussing the pros and cons of the Uniform Act. 4:40:36 PM TERRY THURBON, Delegate, National Conference of Commissioners on Uniform State Laws (NCCUSL), Juneau Alaska, clarified that she is testifying today on behalf of the Uniform Law Commission, not on behalf of her position with the State of Alaska. She explained that the state sends delegates to the NCCUSL to work on Uniform Acts, and bring back Acts for consideration. The changes made by the sponsors and the Alaska attorneys, who are experts in this area, have been approved by the national organization, with the one exception which will be offered as an amendment in the House Judiciary Standing Committee. She related that if the bill moves forward that it would be considered substantially similar to Uniform Act. 4:42:29 PM REPRESENTATIVE GRUENBERG related that the commissioners of the NCCUSL have allowed this to be considered a Uniform Act and will set out the differences between the Alaska version and the Uniform Act. 4:43:21 PM MICHAEL KERR, Legislative Director, Uniform Law Commission, National Conference of Commissioners on Uniform State Laws (NCCUSL), thanked the committee for hearing the bill. 4:44:10 PM DAVID SHAFTEL, Attorney, Shaftel Law Offices, PC, stated that he is an attorney and a member of an informal group of trust officers. The language in this bill was initially introduced several sessions ago, but the legislature did not have time to consider. The same bill was reintroduced this legislative session, but the Alaska group has recommended a number of minor changes, which were previously addressed, and are all acceptable by the NCCUSL. 4:45:34 PM MR. SHAFTEL provided a section-by-section analysis of HB 287, as follows: Section 13.70.020 is a default statute as other law will supplement this bill. This section basically provides that if matters are not covered in the instrument, including the will, trust, or other instrument, these provisions will apply. Section 13.70.030 covers the power to disclaim, and provides the general rules about a disclaimer. When a person disclaims something, they basically say that they do not want it. In those instances the person would be treated as though he/she has predeceased the benefactor, and it reverts to the instrument, and the inheritance is distributed according to directions in the instrument, or default rules apply. Section 13.70.040 covers the basic rules if a disclaimer is made. Section 13.70.050 establishes rules for disclaiming interests in jointly held property, which was an area of controversy for many years in the tax law. This statute helps significantly in this area. Section 13.70.060, allows for a disclaimer of a survivorship interest in property held as a tenancy by the entirety. A number of states have this provision, which is limited to married couples. Section 13.70.065 addresses the disclaimers of interest by trustees and when a trustee may disclaim. Section 13.70.070 establishes general rules for disclaimers of a powers of appointment, which are often used and really means a person may draft a will or trust, but the person may give their spouse or child the power to make changes. Those powers of appointment can be disclaimed. Section 13.70.080 similarly addresses disclaimer by the object of a power of appointment. Section 13.70.090 indicates when a disclaimer takes effect if a fiduciary disclaims a power held in a fiduciary capacity. A trustee or personal representative will have powers that perhaps for tax reasons are harmful, and this allows the trustee to disclaim powers. 4:49:14 PM MR. SHAFTEL continued providing a section-by-section analysis, by stating: Section 13.70.100 deals with how notice of the disclaimer is given and [whom] it should be given to and provides helpful rules for notice. He offered that it may be a complex provision, but it is very helpful. Section 13.70.110 pertains to when a disclaimer is permitted or not permitted. For example, if a person is given property and accepts the property, the person can no longer disclaim, since that must happen prior to acceptance. Section 13.70.120 pertains to tax qualified disclaimers. The Internal Revenue Code deals explicitly with disclaimers and are often used to correct situations and establishes a nine month limit, but relaxes some provisions. Section 13.70.130 relates to recording the disclaimer. Section 13.70.140 relates to the application of this statute to existing situations. Section 13.70.190 provides helpful definitions. 4:51:10 PM MR. SHAFTEL related that considerable time has been made to consider changes for Alaska. Speaking for his informal group, he asked to recommend this bill for members' serious consideration as it will help all Alaskans. 4:51:45 PM REPRESENTATIVE CHENAULT referred to proposed Section 13.70.030, which allows a parent to disclaim for a child. He asked for an example. MR. SHAFTEL offered that a classic example would be a situation in which a child wants to disclaim so the assets would then go to the surviving parent who needs them. 4:53:49 PM REPRESENTATIVE CHENAULT suggested a grandparent leave $1 million to grandchild; by this provision would that allow the parent to disclaim the interest and receive the $1 million. MR. SHAFTEL stated no, only if parent received the interest, then it would go to the grandchild. REPRESENTATIVE CHENAULT expressed concern that if the money went to the parent the grandchild would not receive the inheritance. 4:55:17 PM REPRESENTATIVE CHENAULT, in response to Mr. Shaftel, clarified that he was not referring to the bill but to the November 30, 2009 letter from Shaftel Law Offices, P.C, which was in members' packets. 4:55:43 PM MR. SHAFTEL then referred to page 2, lines 15-21 of HB 287, which read: (2) in the absence of a court appointed guardian a natural guardian may disclaim on behalf of a minor child of the natural guardian, in whole or in part, any interest in or power over property, including the power of appointment, that the minor child is to receive solely as a result of another disclaimer, but only if the interest or power disclaimed by the natural guardian does not pass to or for the benefit of the natural guardian as a result of the disclaimer. MR. SHAFTEL explained that this means the guardian can disclaim for the minor child, when the minor child receives an interest as a result of another disclaimer. Most often that is the interest of a parent. He described an instance in which this paragraph would apply, such as when a minor child has received an interest since someone else, the primary beneficiary said, "I don't want it." Usually, that person is the parent, but it might be someone else. He described another scenario in which he would leave $100,000 to his brother, but if his brother disclaims, or has predeceased him, the interest would go to his sister's minor child. However, his sister could disclaim. His brother may have disclaimed because he thought the inheritance should go to Dave's wife since she needs the $100,000. Normally if the brother disclaimed, the $100,000 would go to his sister's child, but his sister, who is the natural guardian of the minor child could then disclaim, because she believes it should go back to Dave's surviving spouse. 4:58:22 PM REPRESENTATIVE CHENAULT expressed concern if the parent has disclaimer rights over their child that the parent could bypass the child. He asked whether he is talking about two different things. MR. SHAFTEL agreed that those would be two different things. 4:59:22 PM MR. KERR commended the sponsor for bringing this forward. He related that this set of amendments is largely in response to changes since the Act was first promulgated in 1999. The Internal Revenue Code, Section 25.18 clarified the rules for a qualified disclaimer and these amendments ensure that "people don't get trapped." He urged approval of HB 287. 5:00:27 PM REPRESENTATIVE GRUENBERG referred to the language on page 2, lines 15-25, and to Representative Chenault's question. He asked whether this language was provided by the Alaskan attorneys reviewing the suggested updates to the Uniform Act, but is not in the Uniform Act. MR. KERR agreed that is correct. MR. KERR, in response to Representative Gruenberg, agreed that the Uniform Law Commission does not have any objection to the change. He referred to the top of page 4 of the bill, and stated this language is only applicable when it is the result of another disclaimer. So this answers the earlier question, which asked whether "this is two different situations." It is not as though the parent can disclaim on behalf of the child and then receive the inheritance or interest. Because of that and since the term "natural guardian" comes from Alaskan practice, the ULC does not envision a problem. 5:02:19 PM REPRESENTATIVE GRUENBERG pointed out that a natural guardian has a fiduciary duty to the child and cannot steal from the child. Thus, if the guardian is misusing the trust, the child would be able to maintain a cause of action against the natural guardian, which is the protection for the child. MR. SHAFTEL answered yes, that was his understanding. 5:02:56 PM CHAIR OLSON, after first determining no one else wished to testify, closed public testimony on HB 287. 5:03:07 PM REPRESENTATIVE CHENAULT asked for a layman's definition of a natural guardian. REPRESENTATIVE GRUENBERG believed that the rules to determine who is the natural guardian of a child are located on page 2, lines 22-31, and page 3, lines 1-7. 5:04:22 PM REPRESENTATIVE CHENAULT asked whether that also would apply to adoption. REPRESENTATIVE GRUENBERG stated that if a person adopts a child that person, he/she becomes the legal mother and father. He referred to Page 2, lines 24-25 of HB 287, and clarified that the legal mother and father would be the birth mother and father or an adoptive mother and father. In further response to Representative Chenault, he pointed out that the provisions that apply are contained in the adoption code, which states that the effect of the adoption decree is to provide all the rights and responsibilities of a birth parent. 5:05:57 PM REPRESENTATIVE T. WILSON moved to report HB 287 out of committee with individual recommendations and the accompanying fiscal notes. There being no objection, HB 287 was reported from the House Labor and Commerce Standing Committee. 5:06:46 PM The committee took an at-ease from 5:06 p.m. to 5:08 p.m.