Feature contributed by Alaska Trust Company (www.alaskatrust.com)
The Alaska State Legislature has unanimously passed Senate Bill 65, which further enhances Alaska’s trust and estate laws. That passage of this bill represents the third trust-related bill in the last five years and the eighth bill since 1997.
This shows Alaska’s commitment to achieving and maintaining great trust laws. While Alaska has been considered a top-tier trust jurisdiction since the passage of the 1997 Alaska Trust Act, SB 65 provides several key enhancements.
Directed Trust Statutes: While Alaska has always had a directed trust statute, many interpreted the statute to be vague and cryptic. The new language provides for expanded authority and is now specific and clear.
Stronger Decanting Provisions: With these updates, Alaska’s decanting law is now, arguably, the strongest in the nation. It now specifically allows for the ability to extend the duration of a trust, the ability to grant a lifetime power of appointment to a beneficiary and the ability to decant for purposes of protecting public assistance benefits.
Lifetime Transfers of IRA Interests: Many states prohibit the transfer of IRA interests during the lifetime of the owner. Now IRA owners can transfer their interests in Alaska IRAs (including Roth IRAs) prior to death and the acceleration of the inherent income of the IRA should be avoided if the interest is transferred to a disregarded entity, such as a single member LLC or Grantor trust. This permits a very unique planning opportunity that is not available in any other state.
Use of Trusts to Avoid State Income Tax: Under a series of private letter rulings, the IRS has held that trusts drafted with certain provisions allow for transfers to the trust to be incomplete for gift tax purposes and for the trust be deemed a non-grantor trust. Under this structure, the trust is able to avoid state income tax, provided the trust is created in a state without an income tax and avoid making a taxable gift. These trusts are most commonly referred to as DING trusts. This update brings Alaska law in line with Nevada’s which recently received PLR 201320002 regarding this structure.
Beneficiary Property Rights: Provision clarifies that under Alaska law, a beneficiary does not have a property right in his or her beneficial interest of a discretionary trust but rather has a mere expectancy. Therefore, creditors of a beneficiary have no legal interest to attach.
Additionally, there is now a provision that allows a trustee to directly pay the expenses of a beneficiary of a discretionary trust. The creditors cannot seek a court order to attach trust assets or distributions nor can they obtain a court order to compel the trustee to make a distribution to the creditor.
Equitable Remedies as Applied to LLC and LP Interests: New provisions clarify that a charging order is the sole remedy for a judgment creditor and expressly states that both legal and equitable remedies are not available and cannot be ordered by a court. The law now clarifies that charging order remedy applies to single-member LLCs as well.
Extension of UTMA Custody Term: Current law mandates that a Uniform Transfer to Minor Account must terminate at either 18 or 21, depending on how the account was created. The new law provides for extensions of this term, provided that the minor is given notice, to age 25 and beyond. This could be useful in situations where the minor is unable to manage the assets.
Senate Bill 65 provides an update to Alaska’s trust laws and ensures that Alaska remains one of the premier trust and estate planning jurisdictions. We continue to expect good things to come in future updates.
For a more detailed and thorough analysis of the updates provided by Senate Bill 65, please look for an upcoming, two-part article in the September and October issues of Estate Planning magazine written by Jonathan Blattmachr, Beth-Ann Chapman, Mitchell Gans and Dave Shaftel, or check the Alaska Trust Company website: http://www.alaskatrust.com
Matthew D. Blattmachr is a trust officer at the Alaska Trust Company in Anchorage, Alaska.
