SB 60-UNIFORM PROBATE CODE; TRUSTS, WILLS  1:43:05 PM CHAIR PASKVAN announced the consideration of SB 60. TREVOR FULTON, staff to Senator McGuire, sponsor of SB 60, explained that probate is the legal process in which a will is reviewed to determine whether it is valid and authentic. Probate also refers to the general administering of the 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. With a will during probate, much of the estate is taken by taxes (mostly federal) and sometimes attorneys. 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 deals specifically with trusts and the Uniform Probate Code by clarifying, updating, and adding to existing Alaskan probate laws with the aim of improving the ease of administration of wills, estates and trusts for Alaskan residents, and secondly with the aim of making Alaska a more attractive place to do trust business. Most of these changes involved either clarifying language or omitting unnecessary verbiage. Other changes include clarifying issues relating to representation of an incapacitated person, clarifying property transfers involving a deceased spouse, creating a procedure for the establishment of will and trust validity before death and addressing the venue proceeding if a decedent lives outside of Alaska, but held significant assets within the state. These changes in SB 60 were brought to him by experts in the probate and trust field, and they had not received any negative feedback on them. The trust business is a highly competitive, multi-billion dollar sector that often crosses state lines in order to take advantage of more attractive state trust laws. SB 60 makes Alaska a more attractive place to do trust business and by doing so, creates jobs and revenue that would otherwise go Outside. The State of Alaska has directly received millions of dollars in tax revenue and many Alaskan jobs have been created in trust banking, insurance and legal professions due to its competitive and contemporary trust laws. It diversifies the state's economy and makes it an attractive place to invest. 1:47:38 PM DAVID SHAFTEL, Estate Planning Attorney, said he is a member of an informal group that has worked with the Alaska Legislature since 1997 to improve the state's trust statutes. He is familiar with all the provisions of SB 60. Section 1 allows a person who creates a trust to designate a representative who can represent incapacitated persons - for example - miner children, unborn children or an incapacitated adult. This provision was first drafted into Florida law a few years ago. Section 2 corrects a typo in existing law. Sections 3 and 4 fix updates Alaska law that conforms with language Delaware and New Hampshire have dealing with an irrevocable trust that is created by a "seflor," someone who could be a discretionary beneficiary of the trust. The seflor's creditors couldn't reach the assets of the trust, but it would be done well before the seflor has any claims against him. If you do this with your spouse's consent or before you marry, then your spouse has no claim against the assets in that trust. Sections 5, 6 and 7 are technical provisions. 1:52:29 PM Section 8 allows a person who has drafted a will or trust to have it validated in court before he dies so that it can't be challenged, by a family member, for instance. Several other states have provisions like this, but not as well written. 1:54:17 PM Section 9 updates the venue statute for probate of a will of a person who is not a resident of Alaska when he dies. Examples include people who move out of Alaska to a warmer place. Sections 10 and 11 allow a fiduciary, personal representative or trustee to consider discretionary distributions as coming from capital gains. This is a provision that will result in better tax planning for beneficiaries of estates and trusts, because of the lower overall tax consequences of a distribution. He noted that there were three other bills in this legislature on the same subjects. 1:56:23 PM SENATOR BUNDE asked if he said the changes created a typo in section 2. MR. SHAFTEL clarified that it corrected an existing typo in the statute. CHAIR PASKVAN asked if the irrevocable trust and the discretionary beneficiary provision lessened the need for prenuptial agreements. MR. SHAFTEL answered yes; that is one of the functions this type of trust can serve. If you want to make sure certain assets would not be subject to divorce down the line, you could create this type of a trust 30 days prior to marriage. It could be done after marriage if the spouse consented to it. CHAIR PASKVAN asked if this is intended to attract other people to Alaska to use this type of irrevocable trust or is this for Alaskans' needs. MR. SHAFTEL responded that most of his clients from medium and large estates almost take advantage of this kind of trust, which is called a self-settled discretionary spend thrift trust. Many Alaskans are using it, but it also has been an attraction for non-residents. When Alaska created this law in 1997, it was the first state to have a usable statute allowing for this kind of trust; now there are 12 states. His office uses it primarily for residents of Alaska. CHAIR PASKVAN asked for a definition of medium and large asset value clients. MR. SHAFTEL replied his office defines "medium estates" as starting with estates that are larger than the applicable credit amount. That amount has increased from $1 million since 2001 to $3.5 million in 2009; it was $2 million last year. The talk on the street is that it would stay at $3.5 million and be indexed in the future. He said that they are watching to see if Congress does anything more with this definition. A "large estate" is anything over that - about twice that amount. Typically a married couple could protect twice that credit amount or $7 million. 2:01:45 PM SENATOR THOMAS asked if the venue section refers to wills only, but to trusts as well. MR. SHAFTEL answered that this section of the work draft only deals with wills. Another venue provision deals with pre-mortem proceedings that he described before dealing with validating a will or trust. SENATOR THOMAS said he was looking at section 8. The real question is if it says the original court proceedings would take place in a particular state that may not be the person's residence; and if that is the case, what happens if the State of California, for instance, had similar laws that required that all people residing in their state, regardless of such a term in a will or trust, would be settled in that state. MR. SHAFTEL replied that his first question deals with "pre- mortem proceedings" in section 8, which covers venue for both wills and trusts. Regarding his second question, he was not aware of any state saying a person's estate must be probated in that state. He remembered when a number of states fought over the right to tax Howard Hughes property. It was very complicated and the states eventually agreed to divide up the state taxing power for that instance. 2:05:28 PM CHAIR PASKVAN asked if a non-domiciled person could in the document, itself, establish Alaska as the venue for resolution of these trust and will issues. MR. SHAFTEL answered yes. The new provision (section 8) allowing for establishment of the validity of a will or trust before death anticipates that the person who created that document if they weren't a resident of Alaska, would come to Alaska to file the proceeding. CHAIR PASKVAN said his concern was focused on the cost to the court system. 2:07:21 PM MR. SHAFTEL said he could only give his opinion, but four other states have this or similar processes, so it's not as if Alaska would have a monopoly. This particular statute is written particularly well, and he thought it would be copied by a number of other states. This provision will serve Alaskan residents and some people who decide to choose to have this proceeding in Alaska. He reminded them that a lot of people view Alaska as being "a tremendous distance away," and he thought that most people would probably go to other states that are closer. He thought that the costs of people who come up here and use the state's professional services would at least match and probably be significantly greater than the cost to the court system. 2:08:51 PM SENATOR BUNDE noted that there is a zero fiscal cost to the state, but he thought maybe the Department of Revenue should give them a ballpark figure for what the state is making off of the trust arena. 2:10:14 PM MR. SHAFTEL commented that he didn't want to leave them with the wrong impression. The estate statutes they have been working on for 12 years primarily benefit Alaskans. It has only been made available to other non-residents. 2:11:52 PM SENATOR THOMAS asked if the venue aspect is available to people who have no assets in Alaska, but simply want their will probated or the procedures for the trust to happen here. MR. SHAFTEL answered yes. "The statement of trust, for example, makes it clear that a person can choose what state's trust law they want to have apply to their trust." So, there is a lot of crossing of state lines by persons using estate and trust laws. 2:13:17 PM DOUGLAS BLACKMACHER, Alaska Trust Company, supported SB 60. They know the state has received a number of millions of dollars over the last 10 years because of these changes to its estate statutes. He hasn't noticed a significant increase in use of the Alaska court system, however. 2:14:59 PM CHAIR PASKVAN closed public testimony. MR. FULTON noted CS SB 60(), labeled 26-LS0320\E. 2:16:59 PM SENATOR MEYER moved to bring version E before the committee. There were no objections and it was so ordered. SENATOR BUNDE wanted to hear about the substantial differences between the original SB 60 and the CS. MR. FULTON explained that changes came from continued conversations between Mr. Shaftel and Terry Bannister, LAA attorney. 2:18:47 PM He explained section 1 changed "represent or bind" to "represent and bind" when you are the designated representative. In section 2 the "decedent" replaces "self"; there were no changes in section 3. 2:22:02 PM The only substantive change is the venue change that was already discussed in section 9. 2:23:24 PM CHAIR PASKVAN closed public testimony on the CS. 2:23:57 PM SENATOR MEYER asked if this would require a 2/3 vote - referring to section 12, page 14, lines 23-26. 2:25:18 PM MR. SHAFTEL said his understanding is because this is a venue provision that affects the rules of the court it requires a 2/3 vote. SENATOR MEYER asked for the effective date. MR. FULTON answered they didn't request an effective date. CHAIR PASKVAN held CSSB 60, version E, for further thought.