SB 63-TRANSFER RESTRICTIONS ON TRUSTS  2:09:35 PM CHAIR FRENCH announced the consideration of SB 63. [CSSB 63(STA) was before the committee.] ESTER CHA, Staff to Senator Lesil McGuire, introduced SB 63 reading from the following sponsor statement: 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. In 1997, Alaska became the first state to establish a law that allows a person to form an irrevocable trust, be a discretionary beneficiary of the trust and, if the trust has a spendthrift clause, protect the trust assets from the settlor's creditors. To give a little background, I'll summarize the aspect of trusts to which this bill refers. In trusts, there are three parties: a settlor also known as a trust- maker, grantor, or testator; the trustee, which can be an individual or an institution; and beneficiaries. The settlor designates whether or not a beneficiary is discretionary, which means that payment of distributions is determined based on the discretion of the trustee instead of the settlor stating how much and how often payments will be distributed. With discretionary beneficiaries, trustees may be given standards by which to exercise discretion e.g. the HEMS or Health, Education, Management, and Support standard. If the trust has a spendthrift provision, a creditor cannot force the trustee to pay money directly to the creditor. Instead, the creditor must wait until the trustee pays out the distribution to a beneficiary, at which time the creditor can seize the assets. Alaska established in 1997 that assets in a trust would be protected from a settlor's creditors if he designates himself as a discretionary beneficiary, provided that he has no current claims pending. Since Alaska enacted this statute, numerous other states have enacted similar statutes. At present, twelve states allow this type of trust. SB 63 upgrades Alaska's trust statute by adopting provisions that have been adopted by other states. Therefore, without changes in legislation, Alaska would not be able to maintain its position at the forefront. This bill provides the following amendments: · It clarifies the burden of proof which a creditor must meet to establish that a transfer in trust was done with the intent to defraud a creditor · Clarifies that a spendthrift provision will apply to a trust if distributions are made under the exercise of discretion by a trustee who is not the settler, whether or not the exercise of the discretion is governed by the standard · Provides that the spendthrift provision in a trust will apply even though the trustee may distribute income or principal to the settlor to pay income taxes · Clarifies that a beneficiary's interest in a trust, whether or not vested, is not considered a factor or economic circumstance in the division of property subject to divorce These changes in SB 63 were brought to our office's attention by experts in the probate and trust field. SB 63 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 continue making Alaska attractive to trust business and investment. 2:14:02 PM JONATHAN BLATTMACHR, Principal, ILS Management, characterized SB 63 as a catch-up bill for trusts that will ensure that Alaska trust laws are at least as good as any other state's and better in some respects. He noted that in Private Letter Ruling 2009 44002, the IRS held that an individual could create an Alaska trust of which he or she is a discretionary beneficiary and those assets wouldn't be included in that person's estate upon their death. He opined that the only other state that might possibly fall under that favorable ruling is Nevada. He urged the committee to pass the bill. 2:16:58 PM RICHARD HOMPESCH, II, Attorney, Hompesch and Evans LLC, Fairbanks, said he agrees with Mr. Blattmachr's comments and believes that Alaska is nationally recognized for its trust laws. This has made a difference in his practice and has had an impact on the estate planning his company does for clients in Fairbanks. He urged the committee to pass SB 63. CHAIR FRENCH asked if out-of-state individuals enlist his services to establish trusts under Alaska law because the statutes in this state are more favorable. MR. HOMPESCH said yes and cited examples. 2:19:03 PM DAVID G. SHAFTEL, Shaftel Law Offices, said he is a private attorney and a member of the informal group of attorneys and trust officers who have been working with the Legislature since the late 1990's on trust legislation. He related that he has had a similar experience as Mr. Hompesch; many Alaska clients as well as individuals from other states have wanted to take advantage of Alaska's superior trust laws. The provisions in SB 63 will further strengthen the law with respect to this type of trust. He urged the committee to approve the bill. 2:20:04 PM SENATOR WIELECHOWSKI asked if the increased out-of-state business will create additional work for the court system. MR. SHAFTEL said he doesn't believe so; if non-residents with trusts here were to litigate these matters, they would likely do it in bankruptcy court or the state court where the settlor is a resident rather than in Alaska. 2:21:15 PM CHAIR FRENCH asked for a motion to adopt the committee substitute (CS). SENATOR WIELECHOWSKI moved to adopt work draft CS for SB 63, labeled 26-LS0317\P, as the working document. There being no objection, version P was before the committee. 2:21:47 PM JANET TEMPEL, Senior Trust Officer, Alaska USA Trust Company, said her company is the trustee for residents and non-residents on a number of trusts that have been set up under the Alaska Trust Act. She said she completely agrees with the previous testimony that it is important to keep Alaska's trust laws updated. We completely support SB 63, she said. CHAIR FRENCH closed public testimony and held SB 63 to a future hearing.