SB 60-UNIFORM PROBATE CODE; TRUSTS, WILLS  1:36:34 PM CHAIR FRENCH announced the consideration of SB 60. [CSSB 60 (L&C) was before the committee.] ESTHER CHA, Staff to Senator McGuire, introduced SB 60 and read the following into the record. Original punctuation provided. The climate for trust and estate planning is highly competitive, and the trust business is a multi-billion dollar sector that often crosses state lines in order to take advantage of more attractive state trust laws. Without changes in legislation, Alaska would not be able to maintain its position at the forefront. Given this competition, SB 60 seeks to amend the Uniform Probate Code. Probate is the legal process in which a will is reviewed to determine whether it is valid and authentic. Probate can also refer to the general administering of a deceased person's will or the estate of a deceased person without a will. A trust is similar to a will with one very important distinction. With a trust, your property won't go through probate when you die. Whereas a will during probate much of the estate is taken by taxes, mostly at the federal level, and sometimes attorneys. So when you create a trust you transfer your properties and assets to it while you are still alive and it continues on through your death and thus does not need to go through the same costly legal proceedings that a will does. SB 60 therefore clarifies, updates and adds to existing Alaskan probate laws with the aim of (1) improving the ease of administration of wills, estates, and trusts for Alaskan residents and (2) making Alaska a more attractive place to do trust business. Most of these changes involve either clarifying language or omitting unnecessary verbiage. Other changes include: 1) Clarifying issues relating to representation of an incapacitated person 2) Clarifying property transfers involving a deceased spouse 3) Creating a procedure for the establishment of will and trust validity before death 4) And addressing the venue proceeding if a decedent lives outside of Alaska, but held significant assets within the state The changes in SB 60 were brought to our office's attention by experts in the probate and trust field, and to my knowledge, our office has not received any negative feedback on them. SB 60 is part of an ongoing effort to modernize our trust laws and by doing so (1) to create jobs and revenue, (2) to diversify our economy, and (3) to make Alaska as attractive to trust business and investment as Delaware is to credit card and banking business. 1:40:28 PM DOUGLAS BLATTMACHR, President, Alaska Trust Company, said his company has worked with trust attorneys to enhance Alaska trust laws. They support SB 60. DAVE SHAFTEL, Attorney, said he's part of an informal group that has been working since 1997 to improve Alaska estate and trust laws. Currently Alaska is seen as having the best laws in this field, which has attracted significant business from people outside the state. MR. SHAFTEL reviewed four subject areas in SB 60. Section 1 adds a procedure for making changes in documents where it's necessary to give notice and have all interested parties participate. The law has always recognized that someone with capacity and a similar interest can represent and incapacitated person. Subparagraph (G) on page 3, line 10, adds language to facilitate this type of representation. It allows the person whose will or trust it is to designate a representative. Section 2 makes an adjustment to the "widow's election" in an estate. If the surviving spouse doesn't like what the deceased spouse left him or her in the will, he or she can elect against what was left and instead take one-third of the mutually combined assets. This is a common provision in separate property states. Section 3 amends AS 13.12.205(2)(A). Alaska has a self-settled discretionary spendthrift trust whereby a person can create a trust for him or herself and members of their family. The trust assets will be protected from creditors and won't be taxed under the federal estate tax when the person dies. CHAIR FRENCH asked if the only change in Section 3 is the deleted language on page 6. 1:46:58 PM MR. SHAFTEL replied Section 4 is related; it adds a new subsection (b) to the same statute. It's a fair limitation that basically says that if you and your spouse agree that your spouse cannot elect to give the lifetime trust that you set up for the family, or if you set this trust up 30 days before you are married, then the assets in this trust won't be included in pool of assets that your spouse could elect to give at your death if your spouse didn't like what you left him or her in your will. This brings Alaska law into conformity to what other states have done. 1:47:58 PM SENATOR WIELECHOWSKI joined the committee. CHAIR FRENCH asked for an example of how the widow's election works. MR. SHAFTEL posed a hypothetical example that in your estate planning you decide that when you die you want to leave 90 percent of your assets to your children and 10 percent to your wife. Then you die and your wife decides she is unhappy with your will. The law allows her to elect against your will and instead get one-third of the assets in the augmented estate. That is a technical term for the assets the husband and wife have accumulated over their lifetime. Thus, your wife will end up with one-third of the family's assets instead of 10 percent. SB 60 says that if during the marriage both spouses agree to create a special trust, the surviving spouse cannot elect against that particular asset. CHAIR FRENCH observed that, that can only come into being given her consent while she was alive. MR. SHAFTEL agreed. 1:50:59 PM SENATOR COGHILL asked why it is necessary to delete from Section 3 the language that references an irrevocable transfer in trust with a transfer restriction under AS 34.40.110(a). MR. SHAFTEL explained that when this trust law was initially drafted it included this particular kind of trust in the augmented estate. Other states have said that if the spouse consented to the trust or if it occurred before the marriage, then it doesn't make sense to include that trust as part of the augmented estate. This is a continuing and growing area and this change takes advantage of that new learning and thinking, he said. CHAIR FRENCH asked if the widow's election pertains in non- community states only or if it pertains in all states. MR. SHAFTEL replied it's only in non-community property states; in community property states both spouses own half of all the assets. CHAIR FRENCH said Alaska is a non-community property state. MR. SHAFTEL said that is the default classification, but since 1998 Alaskans can elect into a community property system, which is helpful from a tax standpoint. SB 62 makes improvements in that area. 1:54:07 PM SENATOR MCGUIRE joined the committee. MR. SHAFTEL said Section 8 adds a new Article 5A dealing with establishing the validity of a will or trust before death. It addresses the problem of a person who dies after executing a will or trust only to have their family say that the decedent had been incapacitated or unduly influenced or under duress when the will or trust was executed. This establishes a procedure to petition the court to determine that your will is valid before you death. 1:57:29 PM SENATOR WIELECHOWSKI asked what other states have adopted this kind of provision and how much litigation has derived from it. MR. SHAFTEL replied three other states have this kind of law or will allow this type of litigation. In these situations there will be litigation one way or the other, but it's more accurate if it's done up front when the testator or settlor of the trust is available to be a witness. This type of law will allow for resolution of a controversy that will occur one time or another anyway. 2:00:26 PM SENATOR EGAN asked how power of attorney is related. MR. SHAFTEL replied a durable power of attorney doesn't really deal with what happens to a person's property after they die. This provision establishes a procedure for determining whether a person had the capacity to understand what he or she was doing when he or she signed their will or trust and that it wasn't signed under undue influence or duress. 2:02:28 PM CHAIR FRENCH asked when the other three states passed this provision into law. MR. SHAFTEL replied Ohio has had proceedings like this for 10-15 years, but no state has a statute that lays out the step-by-step procedure for doing this. He and others have been working on this provision for 3-4 years. CHAIR FRENCH asked if there have been arguments advanced against this and, if so, what form the take. 2:04:30 PM MR. SHAFTEL replied there could be a concern that more hearings would result. CHAIR FRENCH asked if he agrees that the person that brings the suit bears the cost. The testator would bear the cost of asking the court to validate their will or trust before their demise. MR. SHAFTEL agreed; the burden of proof is on the person that brings the challenge. SENATOR COGHILL pointed out that the testator has the right to change their will or trust after having received court approval. He asked if people who are subject to the trust could use this to intimidate the testator. MR. SHAFTEL answered the settlor has to give their consent for someone other than the personal representative, the testator, or the settlor to bring an action. 2:07:18 PM CHAIR FRENCH referenced page 9, line 9, and clarified that the testator is the person whose will it is. It is only the testator or the person they nominated to serve as their personal representative who can seek one of these court declarations. MR. SHAFTEL agreed. CHAIR FRENCH asked if it works the same way for trusts. MR. SHAFTEL said in the case of trusts either the trustee or the settlor can bring an action. Responding to a request, he explained that the settlor is the person whose trust it is. 2:08:15 PM SENATOR MCGUIRE said that however messy it may be, she'd prefer to let a challenge play out so people don't feel that their rights are abridged. MR. SHAFTEL said the last change, on page 13, adds a venue provision for probate proceedings in Alaska. If the decedent wasn't domiciled in the state at the time of their death, the probate proceeding can be brought in the district where the fiduciary resides or has a principal place of business. SENATOR COGHILL asked if the venue provision could be used as a way to leverage the estate. MR. SHAFTEL replied this provision simply fills a gap in Alaska law. CHAIR FRENCH thanked Mr. Shaftel for his testimony. 2:13:10 PM JONATHAN BLATTMACHR, Member, Alaska Bar Association, reported that his intent in proposing the provision to validate a will or trust before death was to reduce litigation. He expressed the view that this is the best bill of its kind in the country; Arkansas and Ohio have adopted a similar provision, but their procedures are unclear. Responding to Senator Coghill's question, he said he doesn't believe that this would be used to leverage anybody because a judge will make the determination about validity. However, he said, a codicil to the will would knock that proceeding out of the way. This is a great bill that keeps Alaska in the forefront of estate and trust law, he stated. 2:15:41 PM SENATOR MCGUIRE commented that circumstances change through the years and it would give peace of mind to know that your frame of mind and your wishes are a matter of record. SENATOR WIELECHOWSKI asked if this might bring people to Alaska to validate their wills from other states. MR. J. BLATTMACHR replied it is possible. Alaska, New York and a few other states have specific statutes that allow nonresidents to have their wills admitted to original probate in the state in which they are not a resident. He anticipates this will bring some business to Alaska in that regard. 2:18:08 PM SENATOR WIELECHOWSKI said he hopes everyone understands the ramifications. This could be good for Alaska business, but some of the complex cases could consume considerable court time. DANA L. OLSON, representing herself, expressed concern with the breadth of SB 60; it covers too many topics. Also, the bill violates individual privacy and presents constitutional issues related to Article 8, Section 17. She understands the desire to address this business model, but security isn't consistent in this state and the bill doesn't address that. She said she would send her written comments. 2:24:02 PM CHAIR FRENCH asked her to send her comments to his office and he would make sure that all committee members receive a copy. He closed public testimony and held SB 60 for a future hearing. At ease 2:24 p.m. to 2:25 p.m.