SB 162-RULE AGAINST PERPETUITIES                                                                                
                                                                                                                                
BETH CHAPMAN, an attorney with the law firm of Faulkner Banfield,                                                               
stated she is testifying on behalf of herself and her colleagues,                                                               
Mary Zemp and Eric Keifner.  They have an extensive practice in                                                                 
trust and estate law, and have seen significant movement in that                                                                
area by the Legislature in the last several years.  SB 162 will                                                                 
make a technical correction to the Alaska Trust Act, adopted on                                                                 
April 2, 1977. That Act effectively repealed the rule against                                                                   
perpetuities, a rule rooted in the common law that prohibits trusts                                                             
from existing for longer than approximately 90 to 110 years.  The                                                               
legislature repealed that rule so that trusts, established pursuant                                                             
to that act, could be created to allow families to pass assets down                                                             
through the generations.  Unfortunately, the Alaska Trust Act did                                                               
not deal with perpetual charitable lead trusts which are                                                                        
established to provide income to a charity for a specified term.                                                                
When the Alaska Trust Act was enacted to repeal the rule against                                                                
perpetuities, it focused on persons living at the time, so it does                                                              
not apply to charities.  She noted people would like to establish                                                               
charitable lead trusts in Alaska but are unable to do so.                                                                       
                                                                                                                                
SENATOR HALFORD asked for a description of a charitable lead trust.                                                             
                                                                                                                                
MS. CHAPMAN explained an individual may establish a trust and                                                                   
choose to pay all of of the trust's income to a charity for the                                                                 
first 20 years.  After 20 years, the money can revert to the                                                                    
grantor or possibly to the grantor's heirs.  Charitable lead trusts                                                             
are established pursuant to the Internal Revenue Code and qualify                                                               
for the charitable deduction.                                                                                                   
                                                                                                                                
SENATOR DONLEY asked if the full value of the trust can be taken as                                                             
a tax deduction.  MS. CHAPMAN answered no, the actuarial value is                                                               
taken as a deduction.                                                                                                           
                                                                                                                                
CHAIRMAN TAYLOR asked if that is because it will be tied up for the                                                             
20 year period.  MS. CHAPMAN said that is correct, and explained                                                                
that the income generated by the trust is deducted because it is                                                                
paid to a charity.                                                                                                              
                                                                                                                                
MS. CHAPMAN pointed out the Alaska Trust Act was established to                                                                 
generate business and make Alaska a favored location for trusts,                                                                
so, while many people have expressed interest in establishing                                                                   
charitable lead trusts in Alaska, they cannot because of the                                                                    
technical problem regarding the rule against perpetuities.                                                                      
                                                                                                                                
CHAIRMAN TAYLOR asked Ms. Chapman to testify on SB 163 while she                                                                
was present.