SB 344-TRUSTS/ESTATES/PROPERTY TRANSFERS  CHAIR CON BUNDE announced SB 344 to be up for consideration. MR. BRIAN HOVE, staff to Senator Ralph Seekins, sponsor, explained the bill as follows: A vital characteristic of any highly developed economy is the ease with which financial resources flow from one market to another. The magnet-like attraction between money and the market that offers the most advantageous terms at a particular moment in time is, perhaps, best demonstrated within the financial services industry itself. Over the years, the Alaskan banking industry has attracted funds to our state as a result of a particular niche we have successfully developed in an obscure corner of the industry known as trust and estate services. Much of this success can be attributed to the foresight demonstrated by the Alaska State Legislature. Since 1997, the Legislature has passed numerous bills effectively making Alaska a premier jurisdiction for this financial specialty. Just last year, SB 87 adopted a more recent version of the Uniform Principal and Income Act. HB 212 updated other portions of Alaska's trust laws. Both were signed into law last summer. While SB 344 may not be as far reaching, it accomplishes much the same purpose. It does this by making a host of small technical revisions to current statutes. It updates the provisions relating to virtual representation, it clarifies when a trustee can be relieved of liability and it adds provisions, which other jurisdictions have already adopted. Keeping our trust statutes current has had a direct positive impact on our state's economy. Over the years, these periodic revisions have helped to bring hundreds of millions of dollars of trust assets into the state and added tens of millions of dollars to local bank deposits. Furthermore, it has increased business activity for attorneys, accountants, life insurance agents and brokerage firms. This, in turn, creates jobs. Necessity, ingenuity and routine advances in technology collaborate on a daily basis to reinvent the world of financial products and services. To date, Alaska has successfully staked out a place in this world through our contemporary set of trust and estate laws. SB 344 seeks to preserve our position in what amounts to a highly fluid marketplace unrestricted by geographic boundaries. It seems reasonable to keep the money flowing in this direction. CHAIR BUNDE said he understands that current trust laws in Alaska generate some income for the state and asked if he could speculate how fine-tuning the trust would advance the earnings for the state. MR. HOVE replied that would be difficult, but if we don't keep up with the Joneses in this instance, we will be going backwards and the money the state has attracted so far will start to go in the other direction. MS. BETH CHAPMAN, Attorney, Faulkner & Banfield, said she has practiced in the estate and trust area for the last 16 years. She supported SB 344. I believe SB 344 is necessary to ensure that Alaska remains the standard bearer for trust and estate law. Since 1997, when the Legislature passed the first trust act, several other states have tried to take the business from Alaska and keep that business, in particular, Delaware. Many of these changes are designed to ensure that Alaska is the state where folks will want to put their trust assets, both residents and non-residents. Several of the ways that the law is improved is SB 344 makes technical amendments to the recently enacted Uniform Principal and Income Act. It also expands the scope of a doctrine called virtual representation. What this really does is ensures that we are able to give notice to classes of beneficiaries in an efficient manner, access the courts in an efficient and cost effective manner, to ensure that the trust laws are fulfilled in that the testator's trust is, in fact, upheld in the courts. Also and, probably what I consider to be one of the most important aspects of the bill, is section 4 dealing with the limitation on proceedings against trustees. Under current law, we do not have a statute of limitations for causes of actions against a trustee until a final account is rendered on the trust. A final account would normally not be rendered until the trust relationship has been terminated. Alaska now has trusts that can last in perpetuity. Therefore, we could have a very long time before any proceeding could be brought. An example would be where we have a trust that's been in existence for 15 years. Yearly reports have been given to the beneficiaries, but 14 years later, a beneficiary decides that something that occurred in year one is now a problem. They can now seek and bring a cause of action in the court and go back that many years. They are only barred after a final account. This would change that law so that a beneficiary is required to bring a cause of action within a period of time after they have received notice that would give them enough information to recognize that there was a cause of action and, also, that the trustee is required to notify the beneficiary of that time limit. So, it's very protective of the beneficiaries, as well. It's not just a bar, but it's also notification provision. CHAIR BUNDE asked if it would be an oversimplification to say that under the current system the statute of limitations would run until the trust is cashed out and in some cases that might not be in any foreseeable future. MS. CHAPMAN replied that would not be an oversimplification and could happen if the trustee isn't changed prior to the time the trust is terminated. We believe that can lead to costly and complex litigation that should be avoided if we had a statute of limitations that notified beneficiaries of their rights. The other part of the bill that's important is that it expands the spendthrift protection for other types of trust that are commonly used. Last year, the Legislature adopted a trust bill that did expand the spendthrift protection to certain types of charitable trusts. This would expand it to include other types of trusts that are recognized under federal income tax law, most notably a qualified personal residence trust and what is known as a grantor retained annuity trust. CHAIR BUNDE asked her to define a spendthrift provision. MS. CHAPMAN explained: A spendthrift provision is a provision in a trust that limits the creditor's ability to access the trust assets until they are distributed to the beneficiary or to the grantor. Alaska has a spendthrift provision that allows an individual to set up a trust with his or her own assets and retain certain discretionary rights to those funds, but until the funds are actually distributed by an independent trustee, those funds cannot be attached by a creditor. A qualified personal residence trust is generally used to transfer a home from an older generation to a younger generation and right now, by placing it into a trust, it would have no spendthrift protection until we amend the law that would allow the individuals to continue to live there and until the trust is terminated and those assets are distributed out, which does happen generally after a short period of time, those assets would be protected from creditors. In essence, I believe the Alaska Legislature has shown foresight in adopting the laws, has helped the Alaska economy by bringing trust funds to the state and that SB 344 is another bill that will continue the trend in keeping Alaska at the forefront of states with trust laws. CHAIR BUNDE asked if she knew what revenue the current trust law has brought to the state. MS. CHAPMAN replied that she didn't know. SENATOR HOLLIS FRENCH asked: Regarding section (2) pleadings and the parties who are bound by orders and notice regarding proceedings involving trusts - as I look at this section, it strikes me that you're broadening the scope of proceedings that might bind others - that is they no longer have to be formal proceedings. They don't have to even be judicially supervised settlements; they could be non-judicial proceedings and settlements and is that, at first blush, what is happening in this section? MS. CHAPMAN replied, "Yes, it is." SENATOR FRENCH asked her to flesh out the folks who could be affected by a non-judicial settlement of a trust and start with section (c) and go on through. MS. CHAPMAN explained: The individual starting at section (c) that would be bound - and it's important to note that all the individuals who we've bound can only be bound to the extent that there is no conflict of interest - and we are required by the prior section of the code to inform the court - and in a non-judicial if we were going to enforce a non-judicial settlement of the individuals we are attempting to bind. So, in section (c), a minor for example, can be bound by another person so long as there is substantially identical interest. Similarly, an incapacitated person or a person whose identity or location is unknown or not ascertainable. SENATOR FRENCH asked what substantially identical interest boils down to. MS. CHAPMAN answered: Somebody would have substantially identical interests, so that whatever they would receive from the trust would not be affected by what would happen to the other person's interest. For example, somebody who has an interest in the income, but not in the principal, they would not necessarily have the substantially identical interests. If we affect the principal, make a distribution, we would be reducing how much is available to pay the income. So, they are interests that would not be affected by a ruling. So, the effect would be the same to the interests. It doesn't necessarily mean the same amount, but the same nature of the interest. Probably the best example is moving on to section (d) where we talk about class. It says many times we will have a gift that will indicate it will be to my spouse for his or her life and then to my children after the death of the spouse and you may have children who at the time the trust was established are alive, you may have children who are not yet born. Number (d) indicates that if we serve obviously, the people who are alive, that that does bind those after born children. So, we don't have to go back in and relitigate the issue. Similarly in (e), if we have an interest that passes to the surviving spouse and to persons who are heirs of the living person, that would receive it in the future for the future interests, that so long as we serve the living people, that will bind those who are not yet in existence. [Section](f) is where we're talking about a happening of a future event. That's sort of the key to all of these new additions - the (d) through (f). We're talking about binding a class of individuals who will receive it in the future. So, we may not even know who all the members of our class are going to be whether some people may have died, some people may have been added to the class. So, in (e) what we're discussing is if we have a class of individuals who are going to receive it in the future, and then we have another class after that, we have perpetual trusts, that will say to my children, after the death of the last child, to my grandchildren, after the death of the last grandchild on and on and on in perpetuity. Once we bind the first class, then it's going to bind all the other classes along the way so that each time we have a new class coming into existence we do not have to go back to court or a non-judicial settlement to resolve the issue. Most of the issues where we're going to see this statute used is issues involving interpretation. The courts have the authority to require us to serve anybody that the court feels should be served. So, at any time, when we disclose to the court who we intend to give notice to and what provision we're using of this law to give substitute notice, the court could say no, that's not acceptable; you need to go out and serve. The court has the ultimate jurisdiction. CHAIR BUNDE asked if you can put things in an Alaskan trust and still have limited access to them. MS. CHAPMAN replied that is correct. CHAIR BUNDE asked if that had passed the muster of courts. MS. CHAPMAN replied that the statute that was passed in 1997 has not been looked at by a court, yet. MR. STEVE GREER, Atty., said he has been involved in the group that has worked on this legislation for years. "It is a very good piece of legislation." He urged its passage. MR. BLATTMACHR, President, Alaska Trust, supported SB 344. "It will be beneficial for Alaska residents and for businesses and for the State of Alaska." TAPE 04-23, SIDE A    2:58 SENATOR BETTYE DAVIS moved to pass SB 344 from committee with individual recommendations. CHAIR BUNDE asked for a roll call vote. Senators Hollis French, Ralph Seekins, Bettye Davis and Chair Con Bunde voted yea; and SB 344 moved from committee. There being no further business to come before the committee, he adjourned the meeting at 3:00 p.m.