Legislature(2017 - 2018)BELTZ 105 (TSBldg)
04/05/2017 09:00 AM Senate LABOR & COMMERCE
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SB 94-TRUSTS;COMM PROP TRUSTS; POWERS OF APPT 10:18:15 AM CHAIR COSTELLO reconvened the meeting and announced the consideration of SB 94. She stated that the intent is to hear a high-level overview of the bill and take public testimony. A detailed sectional analysis will be provided in a subsequent hearing. 10:19:37 AM WESTON EILER, Staff, Senator Mia Costello, Alaska State Legislature, introduced SB 94 on behalf of the sponsor speaking to the following sponsor statement: Senate Bill 94 improves estate and tax planning options for both Alaskan and non-Alaskans. Since passage of the Alaska Trust Act and enhancements to state policy in 1990s, Alaska has been a leader in the estate planning industry allowing Alaskans to establish trusts to the benefit of our state's economy. This legislation advances Alaska's competitive advantage through three improvements in the area of trust and estate planning law. "Decanting" is a commonly used tool to correct drafting errors, reduce costs of trust administration, and other reasons. Just as wine is decanted by pouring liquid from one container to another - trust decanting happens when one trust pays its assets to another trust. Decanting is used by Alaskans who are looking to update their trust documents. The flexibility it provides also allows non-residents to bring their business to Alaska. Alaska has had a decanting statute for nearly 20 years, Senate Bill 94 would provide additional flexibility and clarification to this statute provision. SB 94 also clarifies certain aspects of Alaska law relating to Powers of Appointment in statute so they can be used more efficiently. One of the most powerful estate planning tools is to grant someone, such as a beneficiary, a "power of appointment," which allows that person the right to specify where property will pass at certain times, such as when the beneficiary dies. SB 94 would clarify state law to say that a trustee can acquire insurance to protect the trust assets from claims of third parties and the trustee from third party and beneficiary claims and to charge the premiums to the trust. Alaska law grants trustees powers to acquire insurance to protect the trust from claims from third parties; however, certain aspects of the powers are ambiguous and in need of clarification. These laws and others enacted by the Legislature have benefitted Alaskans, has resulted in millions of dollars being deposited in financial institutions in the state which has provided capital for Alaska businesses, and provided significant work for many Alaskans. MR. EILER directed attention to the letters of support and background documents in the bill packets. CHAIR COSTELLO asked Mr. Blattmachr to provide some history of Alaska trust law and why this bill is needed. 10:25:32 AM MATTHEW BLATTMACHR, Vice President, Peak Trust Company, explained that when the legislature passed the Trust Act in 1997, it made Alaska the premier jurisdiction to do trusts and estate planning. SB 94 seeks to continue that by expanding the laws regarding decanting and powers of appointment. These are two areas where Alaska has fallen behind other states. SENATOR GARDNER asked for clarification that the bill applies to irrevocable trusts, and that the things the bill seeks to achieve can already be done with a revocable trust. MR. BLATTMACHR confirmed that SB 94 primarily deals with irrevocable trusts, and that there are some capabilities, such as decanting, that irrevocable trusts offer that revocable trusts do not have. With decanting for example, you can revoke or make an amendment to a revocable trust without a technical mechanism, whereas an irrevocable trust cannot be changed without a legal mechanism. Should a trust need to update itself, decanting is the mechanism to do that. SENATOR GARDNER asked if any provisions in SB 94 apply to revocable trusts. MR. BLATTMACHR said the insurance piece and the tracking of trust assets would apply to revocable trusts, "but those would likely only fall if you were using a trustee other than the grantor." CHAIR COSTELLO asked which sections of the bill apply to insurance and tracking trust assets. MR. BLATTMACHR said that Sections 2 and 3 address the purchase of insurance and Section 23 addresses tracking trust assets. SENATOR STEVENS asked if Alaskans are taking advantage of the trust laws. He also asked how the state benefits from the trust business. MR. BLATTMACHR said Alaska's trust laws attract nonresidents to do their planning business here and Alaskans that do estate planning in the state are similarly benefitted. The state benefits several ways one of which is from the 2.7 percent tax on life insurance premiums. He explained that in 1999 the legislature passed a tax regime that is very attractive for those in a high tax bracket. That has attracted nonresidents to purchase large policies and Alaska receives about $7 million a year from the premium tax. The state also benefits from the fee that is paid to register a trust with the state. Many trusts use LLCs and those pay a biannual tax to the state. SENATOR STEVENS asked what percentage of Alaskans use this versus the percentage of nonresidents that do their estate planning in Alaska. MR. BLATTMACHR said Peak Trust sees more non-Alaskans than Alaskans for planning because Alaskans don't need their services as a corporate trustee. However, many of the practitioners that Peak Trust works with do most of their planning for Alaskans. 10:33:12 AM SENATOR MEYER asked for an explanation of the fees. MR. BLATTMACHR said every irrevocable trust is supposed to register with the state and pay a $40 fee. SENATOR MEYER asked how many trusts are formed in Alaska. MR. BLATTMACHR said his organization has opened more than 2,800 trusts, all of which have been registered with the state. SENATOR MEYER asked what makes Alaska trust laws so much more attractive compared to other states. MR. BLATTMACHR said there are a variety of things that make Alaska the premier jurisdiction including: the ability to do self-settled trusts; the rule that allows trusts to continue in perpetuity; and the option to adopt opt-in community trust laws that allow the surviving spouse to get a double step-up in basis. SENATOR MEYER asked if someone who wants to form a trust works through a financial planner, an attorney, or both. MR. BLATTMACHR said there are a variety of ways but legal counsel is needed to draft the trust. 10:36:07 AM CHAIR COSTELLO opened public testimony on SB 94 and directed members' attention to the letter of opposition in the packets from David Shaftel. 10:36:45 AM DAVID G. SHAFTEL, J.D., LL.M., Shaftel Law Offices, P.C., stated that he is an attorney in Anchorage who has been practicing in the area of estate planning and estate and trust administration since the early 1980s. He is also a member of a group of attorneys and trust officers who have worked with the legislature since 1998 to improve Alaska's trust and estate statutes to make it one of the premier jurisdictions. He reported that he participated in drafting the decanting provisions in the bill. These are found in Sections 4-22 and 24- 28. He explained that decanting is a way of modifying an existing trust to make changes or cure problems. He said the current statutes have safeguards to protect the settler's intent, but the proposed provisions relating to decanting do not provide adequate safeguards for Alaskans who have existing trusts. The proposed provisions would apply to every trust that's been created, not just future trusts. He provided an example of a typical estate plan where the assets go to the surviving spouse then when that person dies the assets go to the children in equal shares. Under current statute the trustee is governed by an ascertainable standard which is typically health, education, maintenance, and support. Unfortunately, he said, the proposed provisions of SB 94 do not provide this kind of protection. As proposed, a trustee who is not a settler or a beneficiary can change the ascertainable standard to one of absolute discretion. The interest of certain beneficiaries can be eliminated to the benefit of just one favored beneficiary. MR. SHAFTEL advised that he submitted a memo describing his concerns and offered suggestions to tighten the bill if the committee feels this type of flexibility is desirable. This includes several suggestions for giving notice to everyone about what is occurring and for increasing the fiduciary obligations of the trustee. He also submitted an email from the reporter of the Uniform Trust Decanting Act. This is a uniform law that was enacted in 2015. The reporter is Susan Bart, an attorney in Chicago. She was very critical of these proposed provisions and how they affect the settler's intent and the possible tax consequences of these types of provisions. 10:42:19 AM The present law protects the settler's intent through the ascertainable standard, but the proposed bill does away with that distinction. The new approach focuses on who is the trustee. He noted that he submitted a memo highlighting the deficits and offering suggestions to tighten the bill if the proposed flexibility is desirable. There are several suggestions for giving notice for everyone about what is occurring and for increasing the fiduciary obligations of the trustee. He also submitted an email from attorney Susan Bart, the reporter of the Uniform Trust Decanting Act. He said she is very critical of the proposed provisions and how they affect the settler's intent and the possible tax consequences of the flexible provisions. CHAIR COSTELLO said committee members have copies of your letter and the email from Susan Bart is being distributed. She asked Mr. Shaftel to continue his public testimony when the bill is heard again. 10:45:49 AM CHAIR COSTELLO held SB 94 in committee with public testimony open.