Legislature(2009 - 2010)BARNES 124

01/25/2010 03:15 PM House LABOR & COMMERCE

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03:19:43 PM Start
03:20:11 PM HB146
03:41:08 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Moved Out of Committee
             HB 146-TRANSFER RESTRICTIONS ON TRUSTS                                                                         
CHAIR OLSON  announced that the  only order of business  would be                                                               
HOUSE BILL NO. 146, "An  Act relating to transfer restrictions on                                                               
trust interests."                                                                                                               
3:20:41 PM                                                                                                                    
JANE W.  PIERSON, Staff, Representative Jay  Ramras, Alaska State                                                               
Legislature,  presented  HB  146  on behalf  of  the  prime  bill                                                               
sponsor, Representative  Jay Ramras.   She explained that  HB 146                                                               
clarifies the burden  of proof a creditor must  meet to establish                                                               
to show a  transfer in trust was done with  the intent to defraud                                                               
a creditor.   It clarifies the spendthrift  provision in statute,                                                               
which will apply  to a trust if distributions are  made under the                                                               
exercise  of discretion  by a  trustee  who is  not the  settlor,                                                               
whether or  not the exercise of  the discretion is governed  by a                                                               
MS. PIERSON continued.  This bill provides that the spendthrift                                                                 
provision in a trust will apply even though the trustee may                                                                     
distribute income or principal to the settlor or to pay income                                                                  
taxes.  It 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.                                                                    
3:21:48 PM                                                                                                                    
MS.  PIERSON provided  a  sectional  analysis for  HB  146.   She                                                               
explained that Section  1 of HB 146 would  amend AS 34.40.110(b),                                                               
which   makes   exemptions   to  transfer   trust   restrictions.                                                               
Subsection  (b),  paragraph (1)  requires  that  a creditor  must                                                               
establish  criteria  by  clear  and  convincing  evidence.    The                                                               
subsection  (b),  paragraph  (2)  exception  makes  a  conforming                                                               
amendment to  reflect the  additional materials  under subsection                                                               
(b), paragraph (3)  of HB 146.  The two  changes in paragraph (3)                                                               
of HB 146  would allow a creditor  to satisfy a claim  out of the                                                               
restricted trust  interest if  the trust  requires its  income or                                                               
principal  to be  distributed to  the settlor.   A  new exception                                                               
would  allow   the  settlor  to  receive   certain  discretionary                                                               
distributions made by  the trustee, who is not the  settlor.  And                                                               
the first  new exemption to  subsection (b), paragraph (3)  of HB
146  allows   the  settlor   to  receive   certain  discretionary                                                               
distributions made  by a  trustee, while  a second  new exemption                                                               
relates  to the  receipt of  certain income  or principal  to pay                                                               
income tax due on the trust.                                                                                                    
MS.  PIERSON  explained  Section  2  of HB  146  would  amend  AS                                                             
34.40.110(h)  to  provide  that   a  transfer  restriction  on  a                                                               
beneficiary's trust interest is  enforceable, even if the settlor                                                               
has  certain  powers relating  to  the  appointment, removal,  or                                                               
replacement of a trustee, trust protector, or an advisor.                                                                       
3:22:52 PM                                                                                                                    
MS.  PIERSON explained  that  Section  3 of  HB  146 would  amend                                                             
existing  AS  34.40.110(l).     If  the  trust   has  a  transfer                                                               
restriction, the  beneficiary's trust interest is  not subject to                                                               
a  division in  the  event of  a divorce  or  dissolution of  the                                                               
marriage  of a  beneficiary  of  the trust,  whether  or not  the                                                               
trust's interest is  vested.  This bill clarifies  that the trust                                                               
interest may not be considered  a factor or economic circumstance                                                               
in the division of property at divorce or dissolution.                                                                          
3:23:37 PM                                                                                                                    
REPRESENTATIVE HOLMES referred  to page 1, line 8, of  HB 146, to                                                               
the  standard of  clear and  convincing evidence,  and asked  why                                                               
that standard was  chosen instead of a propensity  of evidence or                                                               
other legal standard.                                                                                                           
MS. PIERSON deferred to one of the experts on the bill.                                                                         
3:24:14 PM                                                                                                                    
REPRESENTATIVE BUCH asked whether the  sponsor had any letters of                                                               
support or opposition for the bill.                                                                                             
MS.  PIERSON answered  that this  is one  of the  bills developed                                                               
through the trust  group and while there were not  any letters of                                                               
support for the bill, one group  supports HB 146 and will provide                                                               
testimony today.                                                                                                                
3:24:55 PM                                                                                                                    
REPRESENTATIVE NEUMAN asked for the reason for the bill.                                                                        
MS.  PIERSON  responded  that   Representative  Ramras  has  been                                                               
working to  keep Alaska as  one of  the premier places  for trust                                                               
and investments, which  is attractive since Alaska  does not have                                                               
an income tax.   The goal has been to  encourage people to invest                                                               
in the state and to place  money into trusts, which are taxed and                                                               
benefit  the  state.    Thus  far, this  effort  has  been  quite                                                               
REPRESENTATIVE  NEUMAN  recalled  Representative Ramras  has  had                                                               
several  bills come  before the  committee on  trust topics.   He                                                               
asked  whether  the   purpose  of  these  bills   is  to  attract                                                               
MS. PIERSON answered yes.                                                                                                       
3:26:12 PM                                                                                                                    
MS. PIERSON, in response to  Chair Olson, recalled testimony last                                                               
year which indicated  that trust investments bring  $8 million to                                                               
the  state.   In  further response  to a  comment,  she said  she                                                               
thought one more bill, which is  not a trust bill, is planned for                                                               
this year.                                                                                                                      
3:27:25 PM                                                                                                                    
REPRESENTATIVE NEUMAN  referred to  a letter in  member's packets                                                               
from Dana Olson and asked for an explanation.                                                                                   
MS. PIERSON responded that she  held a long conversation with Ms.                                                               
Olson, who  holds some agricultural  trust land.  She  appears to                                                               
be  in the  process of  a multi-faceted  bifurcated divorce,  and                                                               
expressed concerns  to the sponsor  that provisions in  this bill                                                               
could affect her trust lands, she stated.                                                                                       
REPRESENTATIVE  NEUMAN inquired  as  to whether  Ms. Pierson  was                                                               
able to address her concerns.                                                                                                   
MS. PIERSON offered her belief  that Ms. Olson has many concerns,                                                               
some of which are not related to changes made by HB 146.                                                                        
REPRESENTATIVE NEUMAN suggested that  perhaps some of Ms. Olson's                                                               
concerns  will  be  addressed  as  this  bill  goes  through  the                                                               
legislative process.                                                                                                            
3:28:55 PM                                                                                                                    
BETH  ANN CHAPMAN,  Attorney, Faulkner  Banfield, stated  she has                                                               
been practicing  in the trust  and estates  area for the  past 22                                                               
years.   She offered her  support for HB  146.  She  related that                                                               
she is  part of an  informal group of trust  attorneys throughout                                                               
the state who work together to  improve Alaska's trust laws.  She                                                               
recalled testimony last  year that discussed the  amount of trust                                                               
assets in the  state.  Alaska now retains many  assets that would                                                               
have left  the state.   Many families  keep their trust  funds in                                                               
Alaska  for future  generations.   She addressed  the constituent                                                               
concern raised earlier  today.  She explained  the bill addresses                                                               
self-settled trusts, that  in the context of  divorce, this bill,                                                               
in  particular, does  not apply  to trusts  established during  a                                                               
marriage  unless there  is  an agreement  that  they will  apply.                                                               
Thus,  any  trust established  during  a  marriage would  not  be                                                               
affected by HB 146.                                                                                                             
3:30:43 PM                                                                                                                    
REPRESENTATIVE BUCH asked  for an example of  successes in estate                                                               
trusts that keep monies in the state.                                                                                           
MS. CHAPMAN stated  she represents a family  that has significant                                                               
wealth,  which  was  generated  in Alaska,  but  the  family  now                                                               
resides in the Lower 48.   Their assets would be distributed upon                                                               
their deaths and normally would move  to the state in which their                                                               
children or  survivors resided.  As  a result of the  trust laws,                                                               
and since  Alaska does not have  a state income tax  but also has                                                               
creditor protection,  family members are keeping  their estate in                                                               
Alaska and  in Alaskan  banks.  Otherwise  the estate  would have                                                               
been liquidated  and the  assets would have  moved out  of state,                                                               
she stated.                                                                                                                     
3:31:47 PM                                                                                                                    
REPRESENTATIVE HOLMES asked Ms. Chapman about standard of proof.                                                                
MS. CHAPMAN  said she could  not, but suggested that  Mr. Shaftel                                                               
would be able to answer the question.                                                                                           
3:32:13 PM                                                                                                                    
REPRESENTATIVE  NEUMAN asked  for  the basic  explanation of  the                                                               
purpose of a trust and the mechanism of how it works.                                                                           
MS.  CHAPMAN  answered that  a  trust  can  be established  in  a                                                               
variety of ways.   For example, if she were  to establish a trust                                                               
for her  17-year-old son, an  attorney would draft  the document,                                                               
and she would ask either a  friend or family member to manage the                                                               
trust.   For  example, she  could ask  the Alaska  Trust Company,                                                               
Wells Fargo, or her sister to  be the trustee.  The trustee would                                                               
invest the trust funds for her  son, subject to the directions of                                                               
the trust  document, would make  distributions for  his education                                                               
if that  is what she  had directed,  and would use  discretion to                                                               
insure the  funds were invested  to fulfill the purposes  set out                                                               
in the trust.                                                                                                                   
REPRESENTATIVE NEUMAN  asked whether  the person  who establishes                                                               
the trust  has the full  authority to explain the  management and                                                               
disbursement of the  funds contained in the trust.   He asked for                                                               
changes to trust law contained in the bill.                                                                                     
MS. CHAPMAN responded,  stating HB 146 will  clarify that certain                                                               
types of trusts will have  creditor protection and not all trusts                                                               
are discretionary trusts.   For example, she could  write a trust                                                               
to designate that  assets shall be distributed  for education, or                                                               
may be distributed for education, or  she may decide to trust the                                                               
trustee  to  use  the  funds for  any  expenditure  he/she  deems                                                               
appropriate.  This bill makes  clear certain types of trusts with                                                               
mandatory distributions,  such as  income tax  distribution, will                                                               
not subject the  trust to the creditors of  the settlor; creditor                                                               
protection is one reason to use such a trust.                                                                                   
3:34:58 PM                                                                                                                    
REPRESENTATIVE  BUCH asked  whether  this covers  probate law  or                                                               
land trusts.                                                                                                                    
MS. CHAPMAN  answered that this bill  covers self-settled trusts,                                                               
but would  not affect what might  happen if a will  has undergone                                                               
the probate process;  these are very specific types  of trust and                                                               
can affect land  or investments as the trusts are  not limited to                                                               
what can be placed in these types of trusts.                                                                                    
3:35:58 PM                                                                                                                    
DOUGLAS BLATTMACHR, President, Alaska  Trust Company, stated that                                                               
he supports  HB 146.   He related  that since Alaska  adopted its                                                               
first  trust law  in 1997,  well over  $500 million  has come  to                                                               
Alaska and  is managed in Alaska  by his trust company  and other                                                               
trust  institutions   and  individuals.    In   addition,  Alaska                                                               
receives about $1 million per year in insurance premium taxes.                                                                  
3:37:30 PM                                                                                                                    
REPRESENTATIVE  HOLMES  asked  Mr.   Blattmachr  to  discuss  the                                                               
standard of review in HB 146.                                                                                                   
MR.  BLATTMACHR  said  he  is  not  best  person  to  answer  the                                                               
question,  although he  related  Alaska is  competing with  other                                                               
states for trusts.  He  understood that some states have stronger                                                               
standards, but  the clear and  convincing standard seemed  like a                                                               
reasonable standard  but would  still allow  the state  to remain                                                               
competitive.   He explained  he has been  working with  the trust                                                               
and  estate  attorneys since  1997  to  try  to make  Alaska  the                                                               
premier  trust   jurisdiction  and   the  group  thinks   it  has                                                               
accomplished that goal, and has enhanced  a number of jobs in the                                                               
trust industry, insurance, and legal communities.                                                                               
3:39:17 PM                                                                                                                    
MR.  BLATTMACHR, in  response to  Chair Olson,  offered that  his                                                               
brother,  Jonathan  Blattmachr,   is  a  leading  estate-planning                                                               
attorney  based in  New  York  but is  licensed  in  Alaska.   He                                                               
explained  that  he,  his  brother, and  Mr.  David  Shaftel  are                                                               
currently attending an  estate planning conference in  Miami.  He                                                               
thought the  other testifiers  may have  had trouble  getting on-                                                               
line or might be attending seminars.                                                                                            
3:40:10 PM                                                                                                                    
CHAIR  OLSON,  after first  determining  no  one else  wished  to                                                               
testify, closed public testimony on HB 146.                                                                                     
3:40:28 PM                                                                                                                    
REPRESENTATIVE NEUMAN moved to report HB 146, Version 26-                                                                       
LS0633\A out of committee with individual recommendations and                                                                   
the accompanying fiscal notes.                                                                                                  
There being no objection, HB 146 was reported from the House                                                                    
Labor and Commerce Standing Committee.                                                                                          

Document Name Date/Time Subjects
01 HB 146 ver A.pdf HJUD 2/3/2010 1:00:00 PM
HL&C 1/25/2010 3:15:00 PM
HB 146
02 HB146 Sponsor Statement.pdf HJUD 2/3/2010 1:00:00 PM
HL&C 1/25/2010 3:15:00 PM
HB 146
03 HB146 Sectional Analysis.pdf HJUD 2/3/2010 1:00:00 PM
HL&C 1/25/2010 3:15:00 PM
HB 146
04 HB146 Public Testimony(1).pdf HJUD 2/3/2010 1:00:00 PM
HL&C 1/25/2010 3:15:00 PM
HB 146
05 HB146 Fiscal Note Dept of Law.pdf HJUD 2/3/2010 1:00:00 PM
HL&C 1/25/2010 3:15:00 PM
HB 146