SB 298-TRUSTS: CHALLENGES; CLAIMS; LIABILITIES  9:26:25 AM CHAIR RALPH SEEKINS announced SB 298 to be up for consideration. BRIAN HOVE, Staff to Senator Seekins, introduced SB 298. The bill revises Titles 13 and 34 pertaining to the administration of trust assets. Updates incorporated into Title 13 include the addition of clarifying language relating to the various powers conferred upon the trustee; trustee reporting requirements; and claims made against trust assets. Updates integrated into Title 34 include language pertaining to the exemption from transfer provisions for certain IRA trust assets; technical corrections made to AS 34.40.110(b); and the handling of trust assets in cases of divorce or dissolution. Since 1997, the Alaska State Legislature has consistently worked to update and improve laws regarding the use and administration of trusts. As a result, Alaska is considered one of the premier trust jurisdictions in the country. The updates proposed in SB 298 are in keeping with revisions made to Alaska's trust laws in 1997 and 2003. They are intended to preserve Alaska's leading position within the universe of products and services offered nationwide. 9:28:50 AM The bill clarifies prior trust legislation, makes the administration of trusts in Alaska more efficient and cost effective, and will keep Alaska as the jurisdiction of choice for trust administration. Mr. Hove offered to answer general questions. 9:29:48 AM BETH CHAPMAN described herself as a private practice attorney working in estates and trusts. She represents individual families, individuals who service trustees, and beneficiaries of trust. She said she supports the bill because it brings trust business and revenues to Alaska and helps protect families. The first provision to discuss is in Sections 2 and 3 and is designed to clarify a trustee's powers to appoint trust assets. Simply put, it is designed to improve the administration of trusts so that trustees have flexibility to respond to changing circumstances in the family. CHAIR SEEKINS interrupted Ms. Chapman to ask the committee to adopt the current version of the bill. 9:30:58 AM SENATOR CHARLIE HUGGINS moved to adopt 24-LS1113\ Y as the working document before the committee. Hearing no objection, the motion carried. CHAIR SEEKINS explained the Y version replaces the word "from" on page 2 line 1 with "or" after the word "income." MS. CHAPMAN continued the bill allows the trustee to respond to changes in circumstances. Many times families establish irrevocable trusts and then circumstances arise with regard to beneficiaries. The provision would allow the trustee to continue the trust under terms that are beneficial to the beneficiary, does not impact their interest in the trust, and yet does so without the need to involve a court proceeding. 9:32:38 AM MS. CHAPMAN continued the second provision concerns the statute of limitations for claims against a trustee. Currently Alaska law has three different statutes of limitations for claims against a trustee brought by a beneficiary. This leads to confusion and works to the disadvantage of trust beneficiaries. The proposed changes would eliminate the different time periods for interim reports and final reports. It would eliminate the difference so that there would be one statute of limitations for all types of claims relating to a report given by a trustee. It would also impose additional obligations on the trustees to ensure that the beneficiaries are aware of the time limitation. The statute would require that the trustee use 14-point pitch to clearly communicate the limitation period to the beneficiary. 9:33:51 AM The other amendment to the statute of limitations corrects the time periods for notices when a trustee decides to use the court to approve a report. Currently there is an inconsistency regarding when those notices must be provided. The probate and trust codes are designed to protect beneficiaries by ensuring that claims are handled in an expeditious manner so that assets can be distributed to beneficiaries free of potential claims. The amendment balances expeditious resolution of claims with the rights of beneficiaries to adequate disclosure regarding trust assets and the right to bring claims arising from a trust report. The limitation periods proposed in SB 298 are longer than the limitation periods currently in the probate code that apply to estates but they are fair and provide a good balance between the needs for administration of a trust in an expeditious manner yet protect beneficiaries rights, she said. 9:35:11 AM SENATOR HOLLIS FRENCH asked Ms. Chapman what the statute of limitations would be if the bill were to pass. MS. CHAPMAN responded the bill would reduce the process to two statutes of limitations. The first would be an ultimate limitation of three years. That would be from any report that a trustee provides to a beneficiary. The second limitation period would be six months. That applies to final reports and proposes to eliminate a longer statute of limitations that applies to interim reports, which is two years. SENATOR FRENCH asked Ms. Chapman to describe under which circumstances when, in the life of a trust, a final report is issued. MS. CHAPMAN said a final report is issued when the trust relationship is going to be terminated either because the trust is to be terminated and the assets distributed or a new trustee will be taking over the duties of administration. SENATOR FRENCH clarified in the notice of the final report there would be delivery of notice to the beneficiary that they have six months to act should there be any dispute. MS. CHAPMAN agreed. 9:37:29 AM RICH HOMPESCH, described himself as an attorney in private practice who does estate planning, probate, and trust administration. He testified in support of the bill and agreed with the testimony of Ms. Chapman. DICK THWAITS, Attorney and Chairman of the Board of Alaska Trust Company, testified in support of the bill and agreed with the testimony of Ms. Chapman. He said often times a trustee can anticipate when a trust terminates and can start in motion the six-month statute and make the distribution immediately. 9:39:40 AM SENATOR FRENCH asked him to restate his point regarding the distribution to beneficiaries and the issuance of report. MR. THWAITS said: Oftentimes as a trust comes to its termination, that is, the children are reaching the age at which the trust can be distributed to them, it is advantageous to then issue a preliminary report as to what assets are there, what has been done with the assets, and how the assets are going to distribute. Each beneficiary would then have a six-month period with which to respond or reply. 9:41:09 AM MR. BLATTMACHR, President and CEO of Alaska Trust Company, expressed strong support for SB 298. DAVID SHAFTEL identified himself as an attorney who works in the estate and trust arena and a member of attorneys and trust officers who have worked to improve estate statutes since 1997. He testified in support of SB 298. STEVE GREER identified himself as an attorney whose practice was limited to estate and trust work. He testified in support of SB 298. 9:43:39 AM JONATHON BLATTMACHR, Attorney, said although he is a member of the Alaska Bar, he practices primarily in New York. He was involved in the development of the Alaska trust legislation and said it was a pro-consumer bill. He testified in support of SB 298. CHAIR SEEKINS closed public testimony. SENATOR GRETCHEN GUESS asked Ms. Chapman to walk the committee through how Section 11 would work. MS. CHAPMAN said Section 11 was designed to parallel the claims procedure reviews for probates when there is an estate involved. An irrevocable trust doesn't go through the court probate process and there has been uncertainty regarding how creditors can assert claims against the revocable trusts. When the settlor dies, the trustee can publish notice similar to the notice published for an estate. That notice has a four month statute of limitations and it adopts the probate procedures that are contained in AS 13.16.450-525. They also can file a petition with the superior court for the determination of claims if there are any issues regarding those claims. She said: So what happens is you file a public notice in the newspaper. Claims come in from creditors. The trustee can either allow them or deny them pursuant to the probate code. If a claim is disallowed then we have to give them additional notice and allow them the right to petition the court for determination and validity of the claim. If there are no claims or if we've resolved all claims within four months, then no further claims can be asserted against the assets of a revocable trust just as that happens with an estate, and then the assets can be distributed to the beneficiaries knowing that all claims of the deceased have been satisfied. 9:47:41 AM SENATOR CHARLIE HUGGINS related an anecdote about a probate judge in Georgia who used his position to accumulate a lot of land. He asked her whether there was a liability in Alaska for that scenario to happen. MS. CHAPMAN said she did not believe Alaska runs that risk. Other than Anchorage, the state does not have probate judges. The courts do not oversee the administration of the estates; they are there only as needed for resolving disputes. 9:49:47 AM SENATOR HUGGINS moved CSSB 298(JUD) from committee with individual recommendations and attached fiscal notes. Hearing no objections, the motion carried. 9:50:10 AM