Laguna Beach, CA Tab 10 - TE Subcouncil by fsb96139

VIEWS: 28 PAGES: 37

									                                          AGENDA

                           TRUST AND ESTATE SUBCOUNCIL

                               Montage Laguna Beach, California
                                 Friday, November 20, 2009


Action Items

       1. Approval of August 1, 2009 Minutes (Jim Spratt)


Introductions

       1. Young Lawyer Division Liaison – Jennifer Diveterano Gayle

       2. Law Student Division Liaison – Jason Yoepp

       3. Trust and Estate Division Fellows (Hugh Drake)

          a. First Year Fellows (2009-2011)

                Mildred Gomez
                Miami, FL

                Sasha Klein
                Palm Beach Gardens, FL

                Tye Klooster
                Chicago, IL

          b. Second Year Fellows (2008-2010)

                Stephanie McGee
                San Diego, CA

                Robert M. Nemzin
                Bloomfield Hills, MI

                Raymond Prather
                Chicago, IL
Group Reports

      1. Business Planning (Bill Forsberg)

      2. Charitable Planning and Organizations (Mary Lee Turk)

      3. Elder Law, Disability Planning and Bioethics (Michael Kirtland)

      4. Employee Benefit Plans & Other Compensation Arrangements (Cynthia Stamer)

      5. Income and Transfer Tax Planning (Ed Manigault)

      6. Litigation, Ethics and Malpractice (Gerard Brew)



Committee Reports and Projects

      1. Uniform Laws

                a. Process (David English)

                b. Collaborative Law Act (Gerard Brew/Steve Mignogna)

                c. Insurable Interests (David Neufeld)

      2. Publications

                a. Probate & Property (Tom Featherston)

                b. eReport (Rob Steele)

      3. CLE (Stephanie Loomis-Price)

      4. HR 3324 “Stable Future for Veterans' Children Act” (Michael Kirtland)

      5. Diversity (Jo Ann Engelhardt)

      6. Community Outreach (Marc Bekerman)
                                              MINUTES 

                                  TRUST AND ESTATE SUBCOUNCIL 

                                 Four Seasons Hotel, Chicago, Illinois 

                                           10:00 am –Noon 

                                       Saturday August 1, 2009 

In attendance were – Steven R. Akers - Chair; Alan F. Rothschild, Jr. - Trust and Estate Division
Vice-Chair; Tina Portuondo, Secretary; Gideon Rothschild - Finance and Corporate Sponsorship
Officer; David M. English, Section Delegate to the House of Delegates; Edward F. Koren, - Past
Chair; Marc S. Bekerman, Dominic J. Campisi, Jo Ann Engelhardt, Steven B. Gorin, Harvey
Wallace, Council Members; Terrence M. Franklin, Assistant Secretary, Trust and Estate Division

    1. Introduction and Welcome – Mr. Rothschild


           a. Mr. Rothschild welcomed the attendees to the Subcouncil Meeting.


           b. The Minutes of the May 2, 2009 Subcouncil Meeting at the Fairmont Hotel, Washington,

               DC were approved by voice vote


    2. CLE Activities – Mr. Bekerman

           a. Mr. Bekerman directed attendees to the CLE committee report as submitted as part of
              Council materials.

           b. Skills Training Program Mr. Bekerman noted that the Section recently concluded the
              Skills Training program. This was the third year in New York and the program was a
              great success. The attendance exceeded previous year’s – with almost 60 attendees.
              Mr. Bekerman expressed thanks to Mary Ann Peter and the Section Staff who did a
              phenomenal job coordinating. The biggest complaint from attendees was regarding the
              facilities which will be changed next year. Mr. LaPiana promised that the new building
              will be ready next time. CLE is looking forward to having it again at New York Law
              School. Some of the LLM students attended with full scholarship. The only expense the
              Skills Training program picks up is food.

                   a. Mr. G. Rothschild mentioned that some of the attendees were re-tooling to
                      become trust and estate attorneys after having been practicing in other areas. He
                      suggested it might pay to put an ad in the New York Law Journal for next year
                      and get a bigger draw. Ms. Portuondo observed that Robin Roy pointed out that
                      an ABA publication also mentioned the program.




                                                   1
                  b. Mr. A. Rothschild thanked Mr. Bekerman, Mr. LaPiana and Mary Ann Peter for
                     their hard work, including taking the full week to put the program on. Mr.
                     LaPiana especially praised Mary Ann for her extraordinary work. Mr. Bekerman
                     acknowledged Mr. Featherston for the presentation that he put on Sunday during
                     the program. Mr. Bekerman expects to report the dates for the 2010 Skills
                     Training Program by the fall leadership meeting.



           c. Fall Joint Meeting

                   a. Mr. Bekerman observed that Vicki Wendell and Stephanie Loomis-Price have
                      taken this on and have put together a very good program. Ms. Loomis-Price will
                      be taking on most roles that Mr. Bekerman had been doing; Mr. Tannahill will be
                      working on e-CLE with Jim Roberts; Ms. Loomis-Price and Aen Webster will
                      focus on the spring meeting; General CLE questions should be directed to Ms.
                      Loomis-Price as Vice-Chair of standing CLE Committee.

                  b. Mr. A. Rothschild has been contacted by the Tax Section about having someone
                     talk about Circular 230 on a panel. Mr. Mezzullo will not be attending; Charles
                     Hodges is considered; Mr. Blattmacher possible.

           d. Mr. Rothschild acknowledged Mr. Bekerman’s exceptional leadership in CLE these last
              several years



    3. Group and Substantive Committees --Harvey Wallace

           a. Mr. Wallace reported that Mr. Gorin, Mr. Glazerman and Mr. Winston got together to
              talk about programs including the plenary sessions for the Fall Leadership Meeting,
              which will have the same format as Montreal: a plenary session followed by specific
              topic sessions --

              The Leadership Meeting will start with a session on how to make the new Diversity plan
              work for you. Also working on a memorandum on how to involve new and passive
              members. Mr. Glazerman is working on that. One focus is to try to get committees have
              a letter that goes out automatically to new members. Those who join ABA directly don’t
              get a letter automatically so Committee chairs will need to reach them directly. Another
              project is to have standing committees pay more attention to their websites. Some have
              been keeping up, others have not. The goal will be to have the policy memo linked to the
              websites to help those trying to stay current. The Committee is working on review of
              substantive committee web pages – hope to send out message in the fall to say that the
              websites will be reviewed individually.

              Finally, it is hard to get people up to speed at the fall meeting. Cynthia and Adam will be
              running webcasts, mandatory for vice-chairs. The idea is to make sure each committee



                                                  2
               has basic information. Ms. Portuondo indicates that the Communication Committee will
               also be looking at websites so there should be coordination.

           b. Mr. Rothschild points out that there is a gap between new people and veterans and that
              new people are uncertain about how to reach the right people in the Section to get
              connected. He posited that we need to encourage people to contact the right people to get
              things done.

           c. Mr. Rothschild thanked Mr. Wallace and this committee for the guidance, oversight and
              best practices.




    4. Corporate Sponsorship --Gideon Rothschild.

       Mr. A. Rothschild commented that there has been much discussion about finances, Section
       finances, and “big ABA” finances. Under Gideon Rothschild’s leadership, Corporate
       Sponsorship has developed well. There is still more potential, however. With sponsors we can
       provide greater opportunities for our members.

           a. G. Rothschild --At Tab N of Council materials, see sponsorship opportunities – see
              sponsors for last fiscal year, two law firms for this year’s annual meeting – the
              opportunities we had but without much success. At the upcoming fall meeting, there are
              lots of opportunities in varied price ranges. This is an opportunity for sponsors without a
              lot of money in their budget to get their names out there.



               Fall leadership has opportunities. Then there is a list of potential companies as potential
               targets. Various Trust and Estate businesses, banks, and real estate enterprises. Many
               have never sponsored an event. Mr. G. Rothschild encouraged people who speak at
               programs and seminars to think about asking for sponsorship using this list. He asked
               people to use this list and identify companies with whom they do business. Reach out to
               people who do marketing. Give them a name of anyone on sponsorship committee –
               Gideon or JoAnn Engelhardt and they’ll proceed to give information and follow up with
               phone calls. If you don’t see names of companies you do business with, give their name
               to Gideon or JoAnn and they can reach out to them. They’re still spending a lot of
               money at ACTEC or ACREL or elsewhere. If the budgets are too tight for ACTEC etc.,
               they may be able to support our section at a lower rate.



               Because of their sponsorship we should reach out to support our sponsors as well. Ms.
               Engelhardt suggested that even if you don’t feel comfortable making the pitch directly,


                                                    3
               let Gideon or Jo Ann know and they’ll make the request but it is helpful to have a name
               to pass along. They get a lot of benefit – advertising in Probate and Property, can include
               link to website in e-publications, etc. Mr. Campisi indicated that First Republic would be
               an attractive candidate.

               Mr. A. Rothschild pointed out that we cannot expect this small committee to do it all. It
               is up to each of us to get people to consider sponsorship. The next 2-3 years will be
               tough but there’s no other organization that can touch as many people as we can with our
               sponsorships.

           b. Mr. Akers thanked Mr. G. Rothschild for all his hard work on this.



    5. Synergy Summit and Collaborations with Outside Groups – Jo Ann Engelhardt

           a. The Synergy Summit consists of two sections of ABA, the American Institute of
              Certified Public Accountants, National Association of Elder Law Attorneys, the National
              Association of Estate Planners & Councils and the Society of Financial Service
              Professionals. It is celebrating its 5th anniversary next year. Dave Neufeld was president
              05; JoAnn has been involved, as well as Ed Koren, and Ed Parthemer. Benefits –
              reduced rates for CLE exchanged. The Synergy Summit is looking to present a webinar
              once we get estate and gift tax legislation. The group is focused on how allied
              professionals need to get together to provide benefits to clients. Also the NAPEC got
              proclamation of National Estate Planning Week October -19 --26. This is good
              awareness for what we all do. This gives us a leading edge. One annual meeting and all
              the rest of contact is on phone. The cost is only $500/year. This year will be Thursday
              beginning of fall meeting at hotel near O’Hare. The group has been productive with
              some nice alliances.

           b. Mr. A. Rothschild thanked Ms. Engelhardt for her work on this. It has been beneficial for
              exchanges on programs and joint activities. The ABA rules are fairly restrictive, but we
              want to encourage CLE to anticipate potential questions and explain in advance for when
              we try to do collaborative activities. Ms. Engelhardt observed that it would be nice to
              have pre approved list of providers so we don’t have to go through board of Governors
              approval for joint programs.



    6. Study Committee for Task Force on Teaching Trusts and Estates in Law School – (Bekerman)

           a. Likely to be tabled for time being because of limited Section resources. Mr. English
              pointed out that one problem is getting junior professors to write for publications. The
              Journal doesn’t get much credit for this. E.g. Tom Gallanis could propose symposia to
              his university. Could law professors active in the Section get together to propose a
              symposium every other year? Mr. Bekerman doesn’t oppose the idea of having Section
              academics working on this but it may not be best for a task force.


                                                   4
           b. Mr. Rothschild suggests we stay in touch and decide whether to look back at this in a
              while. Mr. Akers is intrigued by the fact that there is no real expense required and just
              requires having academics get together. Mr. English suggested having the professors get
              together in Laguna Beach to talk about it. He noted there are so few T&E experts
              teaching in law schools – want to encourage T& E scholarship by specialists. Ms.
              Engelhardt points out that some of the materials could be repackaged in shorter format
              for RPTE publications. Mr. Bekerman asks whether ABA RPTE needs to coordinate to
              determine if Board of Governors approval would be required to do so. Mr. Rothschild
              will coordinate with staff re a meeting for the fall, and the extent of Board of Governor’s
              approval necessary. Mr. English and Mr. Featherston believe that Mr. Gallanis would
              be happy to be active in this; Mr. Bekerman is happy to help facilitate. Mr. Rothschild
              asks if there’s a need to approach University of Iowa if it would have any effect on
              relationship with University of South Carolina which produces the Journal.



    7. Probate and Property Magazine -- Tom Featherston

           a. Mr. Featherson reports that this will be his tenth year in this role, and the pipeline has
              been full for the last several months – need to continue to encourage submission of
              articles. In good shape right now, but let’s not let our guard down. A lot of old reliable
              and new faces. Mr. A. Rothschild pointed out that at officer’s pre-meeting it was
              acknowledged that the magazine is a tremendous source of information and well
              respected and a valuable tool. He asked that Mr. Featherston and Mr. Brading help us
              identify new leaders and editors to maintain our quality publications.




    8. E-Report – Rob Steele

           a. Mr. Steele could not be present but asked Mr. Rothschild to note that there are more
              authors, varied topics, and a regular schedule now. It’s important for us to continue to
              identify quick-hit articles that are appropriate for e-report. Mr. Rothschild acknowledged
              that Mr. Steele and Ms. Talley have done a great job with this. Group call schedules, etc.
              are appropriate to be included in e-Report which was stabilized and found its niche. The
              two publications seem to be working well together.



    9. Uniform Laws – David English

           a. Tab 2 B of the Council Book – Uniform Real Property Transfer on Death Act, approved
              with modest revisions, will be ready for enactment by states after fall. Mr. Gallanis was



                                                   5
               active; Dennis Horn was ABA advisor. It was a great working together by the two RPTE
               divisions.

           b. Uniform Insurable Interests Relating to Trusts Act and the Uniform Partition of Inherited
              Property Act are more controversial. The Challa case brought attention to issue of
              insurable interests. The thought behind the act was to address this one trustee issue. If
              settlor had an insurable interest, the settlor’s trustee would have an insurable interest.
              The problem that has arisen is the “stranger owned” life insurance issue. The insurance
              companies have been concerned about “STOLI”. There are negotiations going on to try
              to resolve the differences. Insurers are concerned about schemes where investors use
              insurance as investment vehicle. Mr. English says we may not see a uniform act, but it
              is a big issue. Mr. Rothschild notes that Mr. Neufeld has an extensive report in the
              materials as well.



    10. House of Delegates Matters – D. English

           a. Mr. English referred to the Council Book

                   a. Resolution 103 sponsored by Section on Legislation. Took a NCCUSL act and
                      adopted it for submission to House of Delegates. 103 would import the zealous
                      advocacy concept into guardianship. Family Law Section opposes 103, TIPS has
                      opposed; Individual Rights and Responsibilities is opposed. Mr. English
                      recommends that we oppose and to speak about ramifications for minors
                      guardianship. The inquiry is whether to advocate for child’s views or for child’s
                      best interests. Mr. Campisi points out that this raises malpractice issues about
                      whether attorney is agent of the court and free from liability or attorney with
                      zealous advocacy and liability to the minor client. Mr. English points out that
                      there is a uniform act which allows the court to decide whether the attorney is to
                      be zealous advocate or best interest attorney. Mr. English seeks our
                      recommendation to Council to oppose adoption of 103. On a voice vote, there
                      was no opposition to supporting Mr. English’s recommendation.

                   b. Another resolution is not in the book, a late report. From section of Intellectual
                      Property, and deals with Bilski case from June of this year. It deals with the
                      patenting of business practices. This seeks opportunity for ABA to file amicus
                      brief. Among the ACTEC task force on this subject there was much discussion
                      re tax strategies. The IP section said it approved the concept of the report and
                      resolution on June 15, but it’s come in very late. The Tax Section said they’re
                      not going to oppose except with two minor changes. The Business Section
                      doesn’t oppose it. The issue is not the Bilski case, but rather tax patents. Tax
                      section believes the issue will only be resolved through legislation. Thus need to
                      better define the problem, figure out the issues. We’ll need to try to work with IP
                      section to define the problem. Mr. Akers gave a brief report on substantive issue
                      – business methods patent has certain requirements. IP wants different test re


                                                   6
                       whether there is any judgment involved. If Business and Tax don’t oppose we
                       shouldn’t/ If business Section does oppose, we should revisit. Mr. Rothschild
                       suggests the Subcouncil support handling this issue as Mr. English thinks
                       appropriate. The Subcouncil agreed to delegate Mr. English the authority to
                       pursue this further as he sees appropriate.



    11. Any Other Business – None



    12. Hot Topics – Investment Duties and Damages After the Crash – Dominic Campisi

           a. Mr. Campisi’s article appears at Tab D of the Council Materials, plus two charts to show
              values of investments, etc.

                   a. Crash has emphasized problems with Modern Portfolio theory –

                           1. Risks of Asset Allocation

                           2. Planning problems

                           3. Damages analysis -- Query re damages available under Third
                              Restatement versus Second Restatement



    13. Adjournment—There being no further business of the Trust and Estate Division Subcouncil, the
        meeting was adjourned.




       Respectfully Submitted

       Terrence M. Franklin

       Division Assistant Secretary




                                                  7
    F:\wp\tmf\aba\2009 Summer Subcouncil Meeting




                                        8
                       eReport TE Group/Committee News
           Issue           TE Group(s)           Identify who Will             Submit Copy
                                             Report and on What Topic

February           Income and Transfer Tax   Second week of January     Third week of January

April              Charitable Planning       Second week of March       Third week of March
                   Elder Law

June               Business Planning         Second week of May         Third week of May

August             Employee Benefits         Second week of July        Third week of July

October            Litigation, Ethics        Second week of September   Third week of September

December           Non-Tax                   Second week of November    Third week of November




                                                                                                959487v.1
To:    Trust and Estate Subcouncil, ABA RPTE Section

From: David English, Executive Director, JEB Uniform Trusts and Estates Acts

Re:    NCCUSL Report

Date: November 5, 2009

        The function of the JEB, on which the Section has three official representatives (Joe
Kartiganer, Carlyn McCaffrey, Malcolm Moore) is to make recommendations on new projects,
to advise on the drafting of uniform acts, and to monitor the progress of and to recommend
amendments to already existing uniform acts. Following is a report on current JEB projects and
other NCCUSL activities related to trusts and estates.

                               Already Approved Uniform Acts

        The shelf life of a uniform act is usually about 20 years. A chart of enactments normally
looks like a bell-shaped curve, usually starting slowly, picking up in the second and third year
and then declining at some later point. The following are recent acts on which there is still
significant enactment activity.

      Uniform Adult Guardianship and Protective Proceedings Jurisdiction Act (2007)–13
enactments to date. Numerous introductions and enactments are expected in 2010.

       Uniform Anatomical Gift Act (2006)–these are amendments to an already existing
uniform act. There have been 39 enactments to date. The Act has done particularly well because
of a well-financed lobbying effort by the Organ Procurement Organizations.

      Uniform Prudent Management of Institutional Funds Act (2006)–45 enactments to date.
Like Anatomical Gifts, this enactment effort is well-financed.

        Uniform Power of Attorney Act (2006)–4 enactments to date. There have been numerous
legislative introductions but significant banker opposition had made enactment difficult.

       Uniform Estate Tax Apportionment Act (2003)–6 enactments to date.

       Uniform Trust Code (2000)–23 enactments to date.

       Uniform Disclaimer of Property Interest Act (1999)–16 enactments to date.

        Uniform Probate Code amendments–significant amendments were approved in 2008.
The amendments have three objectives: (1) to update the Code to address issues related to
assisted reproduction technology; (2) to update for other changes in the parent-child relationship,
such as changes in adoption; and (3) to address other and mostly minor issues that have arisen


                                                 1
over the last decade. These amendments have been enacted to date in 2 states.

        Uniform Principal and Income Act (1997)–43 enactments to date. Amendments to
Sections 409 and 505 were approved in 2008. The amendment to Section 409 fixes marital
deduction problems caused by Rev. Rul. 2006-26, in which the Service ruled that the 90/10
allocation rule for distributions from an IRA or qualified plan could result in disqualification of a
trust for the marital deduction. The amendment requires that the trust allocate or allow the
spouse to withdraw the amount necessary so that the trust will be deemed to have sufficient
income for marital deduction purposes. The amendment to Section 505 clarifies the treatment of
taxes on phantom income from an LLC or other flow-through entity. The 2008 amendments have
been enacted to date in 17 states.

       Uniform Guardianship and Protective Proceedings Act (1997)–6 enactments to date.
                                 2009 Annual Meeting

        Real Property Transfer on Death Act (2009)–This new Act allows an individual or
couple to name a survivor beneficiary on a deed without currently conveying any interest.
Invented in Missouri in the late 1980s, the transfer on death deed concept has been enacted by a
number of other states within the past several years. The Section was heavily represented in this
project. The Reporter was Tom Gallanis of the University of Minnesota, Co-Chair of the Trusts
and Estates Division Committee on Uniform Laws. The ABA Advisor was Dennis Horn, who
was appointed by the Section. The Section Advisor was Susan Gary. The RPTE Section has
agreed to cosponsor the Act when it is submitted to the ABA House of Delegates for approval in
February, 2010.

        Uniform Collaborative Law Act (2009)–this new Act provides a statutory structure for a
type of ADR known as collaborative law, under which the parties and the lawyers agree that if a
settlement can’t be reached, the parties will be required to retain new counsel when the dispute
goes to court. Collaborative law is used today primarily to settle divorce cases but the Act is not
so limited. Significant opposition is expected when the Act will be submitted to the ABA House
of Delegates for approval next February. The Family Law, ADR, and IRR Sections support the
Act while the Litigation Section is opposed. The Section needs to formulate a position on the
Act.

        Uniform Law Enforcement Access to Entity Information Act (2009)--is designed to be a
substitute for the Incorporation Transparency and Law Enforcement Assistance Act (S.569),
currently pending in Congress (co-sponsored by Senators Levin, Grassley, and McCaskill).
S.569 would require virtually all corporations and limited liability companies to file “beneficial
ownership” information with the Secretary of State. The Uniform Act, a joint project with the
ULC and the American Bar Association Committee on Corporate Laws, and supported by the
National Association of Secretaries of State, would preserve the traditional confidentiality of
entity ownership and would instead require the filing of the name of an individual (a records-
contact) who would be responsible for obtaining, maintaining, and verifying record ownership
information. Promotion of this Act is being held in abeyance pending a determination of


                                                 2
whether an enactment push is needed to forestall Congressional enactment of more intrusive
legislation like S. 569.

                                 Current Drafting Committees

        Insurable Interests in Trusts–this drafting committee is drafting an amendment to the
UTC to deal with insurable interests of trustees and problems raised by Chawla, which held, as
an alternative ground, that a life policy was invalid because the trustee did not have an insurable
interest. Dave Neufeld, who was appointed by the Section, is the ABA Advisor. The
amendment, which will consist of one section, is expected to be approved next summer.

                               Possible Future Drafting Projects

       Mental Health Advance Directives–a study committee was recently appointed to study
whether the Commissioners should draft a uniform act on this topic. It is expected that the
Reporter and at least one Advisor will be drawn from the Section.

        Uniform Premarital Agreement Act (1982)–this Act has had 27 enactments to date.
Despite this success, families have changed over the last 25 years and the Act may need
updating. The Act also does not deal with post-marital agreements, a significant omission.
NCCUSL has appointed a study committee to determine if consensus can be reached between
estate and family law practitioners and to make recommendations on whether a new Act is
needed and what that new Act should contain.




                                                 3
                  LAW OFFICE OF DAVID NEUFELD
                                         5 VAUGHN DRIVE, SUITE 201
                                        PRINCETON, NEW JERSEY 08540
                                                                                      David@DavidNeufeldLaw.com
                                              (609) 919-0919
                                            FAX: (609) 919-0920



  Fourth Report to the ABA of the Proceedings of the NCCUSL Drafting Committee
            on the “Insurable Interests Relating to Trusts” Uniform Act
                       Reported by David Neufeld, ABA Advisor to the Committee

                                   October 24, 2009, Washington, DC


The following comments are mine alone based on my observations. Nothing stated herein is intended
to be taken as official commentary on these proceedings, which can only be issued by official
channels within the NCCUSL. The background of this project was outlined in a report dated March
1, 2008.

[The following is essentially a repetition of comments made in the July, 2009 report, with some
minor changes, for the ease of the reader: In three previous reports I reported on the background of
the ULC drafting project for “Insurable Interests in Trusts.” I refer the reader to those earlier reports
for a more in-depth analysis. However, I will again briefly summarize the background and current
posture of the project: the charge of this committee was to draft a uniform law to address the issues
raised in the Chawla case, viz. that an ILIT Trustee might lack insurable interest in circumstances
where it was assumed not to be an issue. By participating in this project, it was the stated goal of the
ABA to achieve this end in as expeditious a manner as practicable without interfering with normal
business and estate planning so as to prevent this issue from arising again. The drafting panel is
composed of NCCUSL Commissioners, the ABA Advisor, the ABA Tax Section Advisor and several
observers, including representatives from ACTEC, the American Council of Life Insurers (ACLI),
and others with specialized knowledge. ACLI, as representative of the insurance industry, wanted to
ensure that this Uniform Act not facilitate transactions—and perhaps be used to prevent
transactions—sometimes referred to as Stranger Owned Life Insurance (STOLI). However the Bar
wished to steer clear of these shoals, concerned that if this Act became a pawn in the legislative
battles between the insurance industry and STOLI promoters it would delay expeditious approval of
this Act in the several states.

There had been three prior meetings of the drafting committee, resulting in the draft previously
reported. The draft had a first reading at the 2009 Annual Conference of NCCUSL in Santa Fe
during July. However, the Drafting Committee Chair called a special meeting to coincide with the
Annual Conference. The purpose of the meeting was to address concerns raised by ACLI as
expressed by the ACLI Observer in memos and ad hoc meetings with the Chair. Specifically ACLI
indicated not only non-support for the current draft but active opposition as it viewed the draft as
promoting STOLI.]
                                          Fourth Report to the ABA of the Proceedings of the NCCUSL Drafting
                                          Committee on the “Insurable Interests Relating to Trusts” Uniform Act

                                                                                            November 8, 2009
                                                                                                      Page 2

At this meeting, in an attempt to get alignment from the various constituencies, the Drafting
Committee revisited the proposed Act. The result is the “11/3/09 draft” (Attachment A). This came
about as a result of the discussion of the various options on the table:

       1.     the current draft Act as proposed to the conference, referred to as the “11/13/08 draft”
              (Attachment B): as indicated above, although this draft simply creates an equivalence
              between a trustee and a settlor in specified circumstances, this draft did not have the
              support of ACLI, primarily it seems, one member of the relevant ACLI committee.
              The stated reason was that the Act’s statement “Subject to other applicable laws of this
              state…” is not effective as a bar to STOLI deals when there is no other anti-STOLI
              law in place in that state.

       2.     A draft referred to as the “9/8/09 draft” (Attachment C): developed with a preliminary
              tentative consensus of those in attendance in Santa Fe, including both interest groups,
              this draft creates a rebuttable presumption that voids insurable interest if the policy is
              alienated within five years of issue. This version seemed to provide the certainty for
              estate planners who are concerned with proper drafting and the ability to opine with
              some level of confidence while at the same time prohibiting STOLI deals. However,
              when this version was considered in committee by the relevant parties within ACLI
              they objected, again it seems at the behest of the representative from one particular
              insurance company. It seems that they feel that this version does not deal with what
              happens at inception of the policy. Instead they want a national version of the
              Maryland Act, discussed below, and nothing else will suffice. In addition, for reasons
              of which I am not familiar some members of the NCCUSL Joint Editorial Board also
              oppose this approach (although no vote has been taken).

       3.     The Maryland approach (Attachment D): this is the Act as enacted in Maryland
              pursuant to the efforts of ACLI in that state. From the point of view of the bar, it
              seems to create potentially unavoidable hindrances to normal estate planning, albeit in
              atypical circumstances. Specifically, as described by the Chair:

                     In [the view of the estate planners], the statute effectively limits the use of an
                     ILIT to benefitting only members of the nuclear family, i.e., spouses and their
                     natural and adopted children. Because it incorporates all the vagaries that
                     presently exist in the “closely related” prong of insurable interest law, not to
                     mention the inherent ambiguity on the “primarily for the benefit” test, it
                     dictates that they take the most conservative approach in establishing an ILIT,
                     an approach that arguably does not serve anyone’s interest in the long run.

              This is the approach championed by ACLI. When the discussion turned to the
              uncertainty of “primarily” the ACLI reps confidently predicted this meant 50.0001%,
                                            Fourth Report to the ABA of the Proceedings of the NCCUSL Drafting
                                            Committee on the “Insurable Interests Relating to Trusts” Uniform Act

                                                                                              November 8, 2009
                                                                                                        Page 3

               although there has been no case law or other official interpretations yet. It also creates
               issues in those situations where both nuclear family members and others (nieces,
               nephews, grandchildren, domestic partners, close friends) can share in discretionary
               distributions.

       4.      An approach we designated as the “expanded Maryland” approach and which became
               the “10/5/09 draft” (Attachment E): perhaps reflecting what the ACTEC rep described
               as their “weariness and frustration” with ACLI’s intransigence, this approach would
               adopt the Maryland approach (“primarily” being something ACTEC could “live with”)
               so long as the list of potential beneficiaries can be expanded to the civil law version of
               third degree relatives. This would include nieces, nephews, uncles, aunts and great
               grandchildren and great grandparents. When the question of step-grandchildren (i.e.
               step-children of one’s blood children), which seems to be excluded from even the third
               degree, as permissible direct distributees was considered the Chair decided to exclude
               that further expansion.

       5.      The recently enacted California amendment (California Insurance Code §10110.1(d)),
               which employs an anti-investor provision (Attachment F): this suggestion was
               dismissed as fast as it was introduced, in that it would preclude any trust from having
               insurable interest if even a single beneficiary lacked insurable interest himself.

By the end of the meeting the committee resolved, subject to more considered deliberation by the
relevant constituencies, to amend the proposed Act to a version substantially resembling the 10/5/09
draft (the expanded Maryland approach), the “11/3/09 draft”. It reflects the following modifications:

       1.      remove the “subject to other state law…” language
       2.      expand the list of beneficiaries to the civil law version of third degree relationships (in
               bracketed language), plus language similar to “love and affection” to capture certain
               other relationships that might be excluded from the strict application of this rule
       3.      address the interpretation of the phrase “primarily” in notes to the uniform Act,
               something missing in Maryland
       4.      omit the reference to charities, as this group of beneficiaries is dealt with sufficiently
               elsewhere in the law and this might confuse the issue.

Left for further consideration was whether to use the limited modified definition of “settlor” that
already appears in the draft or to revert to the normal definition of settlor that appears in the UTC. As
background, the UTC defines a settlor as either the person who executes the instrument or the one
who contributes to the trust. The draft Act only looks to the person who executes the instrument as
the settlor. As explained in the notes to the current draft:

       Subsection (a) provides that for purposes of this amendment the term “settlor” is limited to the
                                              Fourth Report to the ABA of the Proceedings of the NCCUSL Drafting
                                              Committee on the “Insurable Interests Relating to Trusts” Uniform Act

                                                                                                November 8, 2009
                                                                                                          Page 4

        individual who executes the trust instrument. This is narrower than the UTC definition of
        “settlor,” which, in addition to the individual who executes the trust instrument, would include
        a person who merely contributes property to the trust. See UTC Section 103(15). Since it is
        the life of the “settlor” that provides the basis of the trustee’s insurable interest under
        paragraph (1) of subsection (b) of this amendment, use of the UTC definition would vastly
        expand the opportunity for a trustee to buy life insurance to fund the trust in ways that might
        not be in keeping with the public policy underlying the insurable interest requirement. In
        addition, since there are situations where a trust instrument will be executed by a fiduciary or
        agent for the creator of the trust, this section makes clear that in such circumstances the
        fiduciary or agent shall be deemed to be the equivalent of the settlor.

There have been some concerns that by making one who contributes even only $1 a settlor can work
mischief in the STOLI issue. It was decided after an extensive email discussion on 10/28 and 10/29
that using the narrow definition would be appropriate so long as (1) the beneficiary limitation in the
10/5/09 draft is employed and (2) so long as there is a provision that ensures that when the person
who executes the instrument is doing so as an agent or fiduciary on behalf of another the insurable
interest is derivative of that relationship, i.e. that the insurable interest inquiry looks to the
relationships of the principal and not the agent.

Request for input and suggestions

The role of the ABA Advisor is to be a resource to the Drafting Committee as well as a conduit of
information between interested parties within the ABA and the Chairman of the Drafting Committee.
In that regard I am soliciting input from interested Sections and Committees concerning the issues
outlined herein.
Distribution:
ABA Secretary: Bernice B. Donald, (Bernice_Donald@tnwd.uscourts.gov)
RPTE Section Director: Robin Roy (robinroy@staff.abanet.org)
RPTE Section Chair: Roger Winston (winstonr@ballardspahr.com)
RPTE Section Chair-Elect: Alan Rothschild (ar@hatcherstubbs.com)
Business Law Section Chair: Nat Doliner (ndoliner@carltonfields.com).
ABA Staff Liaison to NCCUSL: Robin Roy (robinroy@staff.abanet.org)
NCCUSL CAO: J. Elizabeth Cotton-Murphy (elizabeth.cotton@nccusl.org)
Drafting Committee Chair: Roger Henderson (henderson@law.arizona.edu)
                                                                                              Attachment A


 1                            AMENDMENT TO UNIFORM TRUST CODE
                                                                                                               Deleted: 1
 2                                              (11-03-09 draft)
                                                                                                               Deleted: engrossed
 3                                          [liaison styled version]

 4          [SECTION 113. INSURABLE INTEREST OF TRUSTEE.

 5          (a) In this section, “settlor” means a person, including a person for whom a fiduciary or

 6   agent is acting, who executes the trust instrument.

 7          (b) A trustee of a trust has an insurable interest in the life of an individual insured under a
                                                                                                               Deleted: ,
 8   life insurance policy owned by the trust or the trustee of the trust acting in a fiduciary capacity if,   Deleted: ,


 9   on the date the policy is issued:

10                  (1) the insured is:

11                          (A) a settlor of the trust; or

12                          (B) an individual in whom a settlor of the trust has, or would have had if

13   living at the time the policy was issued, an insurable interest; and

14                  (2) the life insurance proceeds are primarily for the benefit of trust beneficiaries

15   who have[:

16                          (A)] an insurable interest in the life of the insured[; or

17                          (B) a substantial interest engendered by love and affection in the
                                                                                                               Deleted: ,
18   continuation of the life of the insured and who are:                                                      Deleted: in addition to those in
                                                                                                               paragraph (A),

19                                  (i) in addition to those in paragraph (A), related within the third

20   degree or closer, as measured by the civil law system of determining degrees of relation, either by

21   blood or law, to the insured; or

22                                  (ii) stepchildren of the insured].]
1                         (C) that constitute a charitable, educational, or religious corporation

2   formed pursuant to [insert appropriate cross reference to not-for-profit corporation law.]]
                                                                                                  Attachment B




1                                [AMENDMENT TO UNIFORM TRUST CODE]
2                                      Proposed Final Draft 11-13-08
3

4             SECTION 113. INSURABLE INTEREST; APPLICABILITY.

5             (a) For purposes of this section, the term settlor is limited to a person who executes the

6    trust instrument. If a trust instrument is executed by a fiduciary or agent, the person for whom

7    the fiduciary or agent is acting is the settlor.

8             (b) Subject to other applicable law of this state,1 a trustee of a trust has an insurable

 9   interest in the life of an individual insured under a life insurance policy owned by the trustee of

10   the trust if on the date the policy is issued the individual whose life is insured is:

11                      (1) a settlor of the trust; or

12                      (2) an individual in whom a settlor of the trust has, or would have had if living at

13   the time of the policy was issued, an insurable interest.

14            (c) This section applies to any life insurance policy, owned by a trustee, issued before,

15   on, or after the effective date of this [Code], if the policy is in force and an insured is alive on or

16   after the effective date of the [Code].2


     1
       Drafting Note: Legislative drafting offices should consider whether specific state statutory provisions should be
     referenced in this sentence. Examples of statutes to be considered for referencing are the state insurance code
     generally, insurable interest statutes, and statutes regulating life settlements, viatical settlements, investor-owned life
     insurance arrangements, trusts created by business entities or organizations, or corporate- or employer-owned life
     insurance.
     2
       Drafting Note: The amendatory language of subsections (a) and (b) could be enacted independently of the UTC,
     either as a free standing provision or as part of the insurable interest provisions of a jurisdiction’s insurance code, in
     which case subsection (c) should read:

              (c) This section applies to any trust existing before, on, or after the effective date of the section, regardless
                  of the effective date of the governing instrument under which the trust was created, but only as to a life
                  insurance policy that is in force and for which an insured is alive on or after the effective date of the
                  section.

     See comment for explanation.

                                                                  1
                                             Comment

         Every state requires, either as a matter of statutory or common law, that a purchaser of
life insurance on another person must have an insurable interest in the life of the insured. See
generally Robert H. Jerry, II & Douglas R. Richmond, Understanding Insurance Law, §§ 40, 43
(LexisNexis Publishing, 4th ed., 2007), at 273-77, 293-98. The definition of insurable interest
became a matter of widespread concern among trust and estate planners after Chawla ex rel
Giesinger v. Transamerica Occidental Life Insurance Co., 2005 WL 405405 (E.D. Va. 2005),
aff’d in part, vac’d in part, 440 F.3d 639 (4th Cir. 2006), where a Virginia federal district court
applying Maryland law held that a trust did not have an insurable interest in the life of the insured
who was the grantor and the creator of the trust. This portion of the district court’s decision was
subsequently vacated by the Fourth Circuit when holding that the district court’s decision should
be affirmed on other grounds, but the appellate decision did not question or criticize the district
court’s insurable interest analysis. The Maryland legislature subsequently enacted a statute in the
state’s insurance code clarifying the circumstances when a trust has an insurable interest in
another’s life, and several other states have enacted varied forms of statutory clarification
designed to address the “Chawla problem.” During this process, the American College of Trust
and Estate Counsel, among others, expressed their opinion that it would be best if a uniform
approach could be fashioned in resolving the matter.

        Consequently, the Uniform Law Commission, after studying the issue, decided that it
needed to clarify the issue with respect to the Uniform Trust Code (UTC) and a drafting
committee was established to do so. The drafting committee, in addition to knowledgeable
Conference members, consisted of representatives from the American Bar Association, American
College of Trust and Estate Counsel, American Council of Life Insurers, consumer advocates,
and other interested parties. This proposed amendment resulted from their efforts and, if
approved, would be inserted at the end of Article 1 of the UTC, as Section 113. In keeping with
the charge to the committee, the purpose of the amendment is to clarify when, for purposes of the
Code, a trust that owns insurance on the life of another person has an insurable interest in the life
of such person. By clarifying this area of law that was subjected to uncertainty by the Chawla
decision, trust and estate planning practitioners will have a reliable basis upon which to draft
trust instruments that involve the eventual payment of expected death benefits.

         Subsection (a) provides that for purposes of this amendment the term “settlor” is limited
to the individual who executes the trust instrument. This is narrower than the UTC definition of
“settlor,” which, in addition to the individual who executes the trust instrument, would include a
person who merely contributes property to the trust. See UTC Section 103(15). Since it is the
life of the “settlor” that provides the basis of the trustee’s insurable interest under paragraph (1)
of subsection (b) of this amendment, use of the UTC definition would vastly expand the
opportunity for a trustee to buy life insurance to fund the trust in ways that might not be in
keeping with the public policy underlying the insurable interest requirement. In addition, since
there are situations where a trust instrument will be executed by a fiduciary or agent for the
creator of the trust, this section makes clear that in such circumstances the fiduciary or agent


                                                  2
shall be deemed to be the equivalent of the settlor.

         Subsection (b) begins with the phrase “[s]ubject to other applicable law of this state.” As
indicated above, as of 2008, a number of states have already adopted amendments to their
insurance codes which address the circumstances when a trust has an insurable interest. Some of
these statutes address collateral issues involving “stranger-originated life insurance,” or
“STOLI,” which is a life insurance arrangement where investors who have no relationship to a
person secure, with the person’s consent, a life insurance policy on such person’s life and fund
the premium payments for investment purposes. This amendment intends neither to encourage
nor to discourage STOLI arrangements, instead choosing to leave the assessment of the public
policies implicated by STOLI arrangements to legislative and administrative bodies that might
address STOLI outside the framework of this amendment. Thus, the amendment makes clear in
subsection (b) that nothing in the statute supersedes other state law, presumably set forth in the
state’s insurance code, that addresses the law of insurable interest generally, the trustee’s
insurable interest specifically, the Chawla problem, or STOLI. The enactment of the amendment
would leave the state insurance code as a separate, independent source of law for evaluation of
whether a trust has an insurable interest in the life of a person on whose life the trust has
purchased insurance. In short, the amendment resolves the Chawla problem for purposes of the
UTC, but the amendment is STOLI-neutral; further, to the extent other state law specifies the
circumstances when a trust has an insurable interest, this amendment supplements the provisions
of such laws and does not contradict or supersede such other laws.

        Subsection (b) carries forward the widely approved rule that the time at which insurable
interest in a life insurance policy is measured is the date the policy is issued, otherwise
understood as the inception of the policy. Thus, if on the date the policy is issued the trustee has
an insurable interest in the person whose life is insured, the policy is not subject to being
declared void for lack of an insurable interest. Under the reasoning that an individual has an
unlimited insurable interest in his or her own life, subsection (b) provides that trust has an
insurable interest in the settlor’s own life. This logically follows because a settlor of a trust who
funds a trust with insurance on his or her own life, in circumstances where the trust is represented
by the trustee selected by the settlor when he or she executes the trust instrument, acquires an
unlimited insurable interest in the settlor’s life when the trust owns insurance on the settlor’s life.
Similarly, recognizing that an individual may purchase insurance on the life of anyone in whom
that individual has an insurable interest up to, generally speaking, the amount of that interest,
subsection (b) provides that the trust has an insurable interest in an individual in whom the settlor
has, or would have had if living at the time the policy was issued, an insurable interest.

        Subsection (c) clarifies which life insurance policies are subject to the amendment. It
assumes that the amendment has already been incorporated into the UTC as Section 113 when
the UTC is enacted by a particular jurisdiction or that it will be used to amend the original
version of the UTC which was previously enacted. Since Section 1106 of the UTC, as originally
drafted, already deals with the applicability of the UTC to trusts existing at the time of
enactment, there is no need to address that issue in this amendment. However, as indicated in the


                                                  3
Drafting Note to subsection (c), the language of the amendment might be enacted as part of the
insurance code or otherwise in a jurisdiction that has not enacted the UTC. In that case, an issue
may arise as to which trusts and life insurance policies the amendment applies. The language in
the second Drafting Note is offered to help resolve that issue.




                                                4
                                                                                     Attachment C




                              [AMENDMENT TO UNIFORM TRUST CODE]
                                        RCH Draft 9-8-09


 1        [SECTION 113. INSURABLE INTEREST OF TRUSTEE; ALIENATION OF
 2   POLICY OR TRUST BENEFITS; PRESUMPTION VOIDING INSURABLE INTEREST;
 3   APPLICABILITY.
 4
 5          (a) In this section:

 6                     (1) “alienation” means:

 7                            (A) by a trustee:

 8                                    (i) any transfer or assignment, directly or indirectly,

 9   of an interest in a life insurance policy, with or without consideration, to another person as an

10   owner or as a secured creditor; and

11                                    (ii) any amendment of the trust, merger of the trust with another

12   trust, or any addition of trust beneficiaries, whether or not pursuant to a power, after the inception

13   of a life insurance policy owned by the trust which results in any change of beneficial interest in

14   the policy from those beneficial interests that existed on the inception date of the policy; and

15                            (B) by a beneficiary:

16                                    (i) any transfer or assignment, directly or indirectly, of a beneficial

17   interest in the trust, with or without consideration, to another person as a creditor, assignee, or

18   transferee; and

19                                    (ii) any transfer or assignment, directly or indirectly, of any interest

20   in a life insurance policy that is property of the trust to another person, with or without

21   consideration, pursuant to a power whether expressed in the form of an appointment, withdrawal,

22   or otherwise.

23                     (2) “settlor” means a person, including a person for whom a fiduciary or agent is

                                                         1
 1                    acting, who executes the trust instrument.

 2           (b) Except as otherwise provided in subsection (c), a trustee of a trust has an insurable

 3   interest in the life of an individual insured under a life insurance policy owned by the trustee of

 4   the trust if on the date the policy is issued the individual whose life is insured is:

 5                    (1) a settlor of the trust; or

 6                    (2) an individual in whom a settlor of the trust has, or would have had if living at

 7   the time the policy was issued, an insurable interest.

 8           (c) Any alienation of a life insurance policy within [5] years from the date the policy is

 9   issued creates a presumption that the trustee had no insurable interest in the life of the person

10   upon whom the policy was issued and is an unenforceable wager, unless the trustee seeking to

11   enforce the policy rebuts the presumption by establishing by a preponderance of the evidence

12   that:

13                    (1) the life insurer issuing the policy consented in writing to the:

14                            (A) power or authority of a trustee or beneficiary of a trust to effect an

15   alienation; or

16                            (B) the specific alienation in question; or

17                                              [ALTERNATIVE A]

18                    (2) at the time the policy was issued, the primary purpose of the trustee in

19   acquiring the policy was not to benefit a person or persons having no insurable interest in the life

20   of the individual insured under the policy.

21                                              [ALTERNATIVE B]

22                    (2) at the time the policy was issued, the primary purpose of the trustee in

23   acquiring the policy was to benefit a person or persons having an insurable interest in the life of

                                                         2
1   the individual insured under the policy.

2                                           [ALTERNATIVE C]

3                   (2) at the time the policy was issued, the insurance proceeds were primarily for the

4   benefit of trust beneficiaries having an insurable interest in the life of the insured.                 .

5           (d) This section applies to any life insurance policy, owned by a trustee, issued before, on,

6   or after the effective date of this [Code], if the policy is in force and an insured is alive on or after

7   the effective date of the [Code.]]




                                                        3
                                                                  Attachment D




Maryland Insurance Code

§ 12-201(b)(6)

The trustee of a trust has an insurable interest in the life of an individual insured under a
life insurance policy owned by the trust or the trustee of a trust if, on the date on which
the policy is issued:

       (i) the insured is:

                1. the grantor of the trust;
                2. an individual related closely by blood or law to the grantor; or
                3. an individual in whom the grantor otherwise has an insurable interest;
                and
       (ii) the life insurance proceeds are primarily for the benefit of trust beneficiaries
            having an insurable interest in the life of the insured.
       (iii) persons having an insurable interest in the life of the insured.
                                                                                 Attachment E




 1                            AMENDMENT TO UNIFORM TRUST CODE

 2                                               (10-05-09 draft)

 3

 4           [SECTION 113. INSURABLE INTEREST OF TRUSTEE.

 5           (a) In this section, “settlor” means a person, including a person for whom a fiduciary or

 6   agent is acting, who executes the trust instrument.

 7           (b) A trustee of a trust has an insurable interest in the life of an individual insured under a

 8   life insurance policy owned by the trust, or the trustee of the trust acting in a fiduciary capacity,

 9   if on the date the policy is issued:

10                   (1) the insured is:

11                           (A) a settlor of the trust; or

12                           (B) an individual in whom a settlor of the trust has, or would have had if

13   living at the time the policy was issued, an insurable interest; and

14           (2) the life insurance proceeds are primarily for the benefit of trust beneficiaries:

15                           (A) who have an insurable interest in the life of the insured;

16                           (B) who have a substantial interest engendered by love and affection in the

17   continuation of the life of the insured and, other than those in paragraph (A), who are related

18   within the third degree either by blood or law to the insured; or

19                           (C) that constitute a charitable, educational, or religious corporation

20   formed pursuant to [insert appropriate cross reference to not-for-profit corporation law.]
                                                              Attachment F


                              Senate Bill No. 98

                               CHAPTER 343

  An act to amend Section 10110.1 of, to add Sections 10113.3 and
10113.35 to, and to repeal and add Sections 10113.1 and 10113.2 of, the
Insurance Code, relating to life insurance.

                [Approved by Governor October 11, 2009. Filed with
                       Secretary of State October 11, 2009.]

                        legislative counsel’s digest
   SB 98, Calderon. Life insurance: contracts and viatical settlements.
   Existing law establishes when an interest, with respect to life and disability
insurance, is insurable.
   This bill would provide that trusts and special purpose entities, as
specified, where one or more beneficiaries of these trusts or special purpose
entities do not have an insurable interest in the life of the insured, violate
the insurable interest laws and the prohibition against wagering on life. The
bill would also provide that any device, scheme, or artifice designed to give
the appearance of an insurable interest, where there is no insurable interest,
violates the insurable interest laws.
   Existing law defines “viatical settlement,” as specified, and requires life
and disability agents, among others, to file a declaration with the Insurance
Commissioner that their agent license is valid and in good standing in order
to engage in the business of viatical settlements. The commissioner may
suspend the agent’s ability to transact viatical settlements if this requirement
is not complied with. A person who enters into or solicits a viatical settlement
without a license, or a licensee who fails to comply with certain
requirements, is guilty of a misdemeanor.
   This bill would repeal these provisions, and would instead revise and
recast the law relating to viatical settlements to define those and other
specified financial arrangements as “life settlements,” as defined. The bill
would prohibit a person from entering into, brokering, or soliciting life
settlements unless that person holds a license, issued by the commissioner,
to so act. The bill would specify the requirements to obtain a life settlement
license, and would specify, among other things, disclosure requirements
that must be complied with at the time of the solicitation of the life settlement
contract. The bill would also provide that the insurance carrier may require
a specified certification from the applicant. The bill would contain various
other regulatory provisions relating to life settlement contracts, including
provisions relating to the confidentiality of the insured’s medical and
financial information, and of the annual statements of life settlement
licensees, as specified. This bill would also provide that applicable license
fees shall be established by the commissioner. Because a violation of any


                                                                              92
Ch. 343                              —2—

of these provisions would be a misdemeanor, the bill would define new
crimes and thereby impose a state-mandated local program.
   This bill would provide that the adoption or amendment of any regulation
required by specific provisions shall take effect when filed with the Office
of Administrative Law, as specified.
   This bill would provide that, with certain exceptions, it shall not apply
to any life settlement contract entered into on or before July 1, 2010. This
bill would provide that it would apply to any transaction involving any life
insurance policy in effect, or entered into, on or after the operative date of
the bill.
   This bill would make legislative findings and declarations relating to the
need for confidentiality of specified information.
   The California Constitution requires the state to reimburse local agencies
and school districts for certain costs mandated by the state. Statutory
provisions establish procedures for making that reimbursement.
   This bill would provide that no reimbursement is required by this act for
a specified reason.

 The people of the State of California do enact as follows:

   SECTION 1. Section 10110.1 of the Insurance Code is amended to read:
   10110.1. (a)  An insurable interest, with reference to life and disability
insurance, is an interest based upon a reasonable expectation of pecuniary
advantage through the continued life, health, or bodily safety of another
person and consequent loss by reason of that person’s death or disability or
a substantial interest engendered by love and affection in the case of
individuals closely related by blood or law.
   (b)  An individual has an unlimited insurable interest in his or her own
life, health, and bodily safety and may lawfully take out a policy of insurance
on his or her own life, health, or bodily safety and have the policy made
payable to whomsoever he or she pleases, regardless of whether the
beneficiary designated has an insurable interest.
   (c)  Except as provided in Section 10110.4, an employer has an insurable
interest, as referred to in subdivision (a), in the life or physical or mental
ability of any of its directors, officers, or employees or the directors, officers,
or employees of any of its subsidiaries or any other person whose death or
physical or mental disability might cause financial loss to the employer; or,
pursuant to any contractual arrangement with any shareholder concerning
the reacquisition of shares owned by the shareholder at the time of his or
her death or disability, on the life or physical or mental ability of that
shareholder for the purpose of carrying out the contractual arrangement; or,
pursuant to any contract obligating the employer as part of compensation
arrangements or pursuant to a contract obligating the employer as guarantor
or surety, on the life of the principal obligor. The trustee of an employer or
trustee of a pension, welfare benefit plan, or trust established by an employer
providing life, health, disability, retirement, or similar benefits to employees



                                                                                92
                                     —3—                                 Ch. 343

and retired employees of the employer or its affiliates and acting in a
fiduciary capacity with respect to those employees, retired employees, or
their dependents or beneficiaries has an insurable interest in the lives of
employees and retired employees for whom those benefits are to be provided.
The employer shall obtain the written consent of the individual being insured.
   (d)  Trusts and special purpose entities that are used to apply for and
initiate the issuance of policies of insurance for investors, where one or
more beneficiaries of those trusts or special purpose entities do not have an
insurable interest in the life of the insured, violate the insurable interest laws
and the prohibition against wagering on life.
   (e)  Any device, scheme, or artifice designed to give the appearance of
an insurable interest where there is no legitimate insurable interest violates
the insurable interest laws.
   (f)  An insurable interest shall be required to exist at the time the contract
of life or disability insurance becomes effective, but need not exist at the
time the loss occurs.
   (g)  Any contract of life or disability insurance procured or caused to be
procured upon another individual is void unless the person applying for the
insurance has an insurable interest in the individual insured at the time of
the application.
   (h)  Notwithstanding subdivisions (a), (f), and (g), a charitable organization
that meets the requirements of Section 214 or 23701d of the Revenue and
Taxation Code may effectuate life or disability insurance on an insured who
consents to the issuance of that insurance.
   (i)  This section shall not be interpreted to define all instances in which
an insurable interest exists.
   SEC. 2. Section 10113.1 of the Insurance Code is repealed.
   SEC. 3. Section 10113.1 is added to the Insurance Code, to read:
   10113.1. The following provisions shall apply to this act:
   (a)  “Advertisement” means any written, electronic, or printed
communication or any communication by means of recorded telephone
messages or transmitted on radio, television, the Internet, or similar
communications media, including film strips, motion pictures, and videos,
published, disseminated, circulated, or placed before the public, directly or
indirectly, for the purpose of creating an interest in or inducing a person to
purchase or sell, assign, devise, bequest, or transfer the death benefit or
ownership of a life insurance policy or an interest in a life insurance policy
pursuant to a life settlement contract.
   (b)  “Broker” means a person who, on behalf of an owner, and for a fee,
commission, or other valuable consideration, offers or attempts to negotiate
life settlement contracts between an owner and providers. A broker represents
only the owner and owes a fiduciary duty to the owner to act according to
the owner’s instructions, and in the best interest of the owner,
notwithstanding the manner in which the broker is compensated. A broker
does not include an attorney, certified public accountant, or financial planner
retained in the type of practice customarily performed in his or her
professional capacity to represent the owner whose compensation is not


                                                                               92
          PROPOSED UNIFORM COLLABORATIVE LAW ACT
    FIDUCIARY LITIGATION COMMITTEE OF ABA RPPRTY SECTION
   RECOMMENDATION TO EXECUTIVE COMMITTEE NOVEMBER 2009

The Fiduciary Litigation Committee has been asked to make a recommendation to the
Executive Committee of the RPPRTY Section on the proposed Uniform Collaborative
Law Act (the “Act”). The Act, promulgated by the Uniform Law Commission in 2009,
standardizes the most important features of collaborative law participation, addressing
ethical concerns as well as matters of evidentiary privilege. Various Sections (Family
Law, Dispute Resolution, Litigation, Ethics) of the ABA were involved in drafting the
Act. Some Sections, notably the Litigation Section, oppose the Act. The Act is to be
voted on at the February mid-year meeting of the ABA.



What is Collaborative Law?

The essence of collaborative law is the recognition of a voluntary written agreement of
parties and their attorneys in a dispute to seek a resolution of that dispute relieved of
court administrative scheduling and formal discovery, with the parties agreeing that no
party will seek a resolution in court during the process, and that if any party does so, the
attorneys involved in the collaborative law process will not participate in the adversarial
proceedings. While 90% of collaborative law use is in the divorce/family law context, in
recent years, its use has expanded into other areas of law, including insurance and
business transactions.



Why Do Some Believe There Is a Need for a Uniform Act?

As the practice has grown it has been governed by a variety of statutes, court rules, and
informal standards. Several states—such as California, North Carolina, and Texas—have
chosen to regulate it through statutes that vary in both length and complexity. Court rules
authorizing collaborative practice can be found in Louisiana, Minnesota, and Utah. Even
in states without a statute or rule, collaborative law is practiced under standards
developed by local or state bar associations, as well as collaborative associations.
Significantly, Colorado has ruled the practice unethical (ruling that lawyers signing such
an agreement were not zealously representing their clients). No other state has found the
practice unethical, and the ABA Standing Committee on Ethics and Professional
Responsibility weighed in with Formal Opinion #07-447 and approved the use of

                                             1
collaborative law so long as the lawyer has explained the costs and benefits of the
practice and the client has given his or her informed consent.



Those who practice in this area believe that a comprehensive statutory frame work is
necessary in order to guarantee the benefits of the process and to regulate its use. It is
believed that enactment of the Act will ensure that collaborative law is practiced in
accordance to ABA standards of ethics as well as practiced throughout the country with
consistent standards. The Act represents the opportunity to legislate collaborative law
while it is still fairly new, thus protecting the lawyers and clients that chose it as a form
of alternative dispute resolution.

Summary of the UCLA

   1. Any party may withdraw from the process at any time.

   2. Participants must make full, timely and candid disclosure of all information
      relevant to the case, and update information as received.

   3. Even while the process is in effect, courts have the authority to issue emergency
      orders to protect the health, safety and or interests of a party or family member
      (think divorce action).

   4. The attorney withdrawal/disqualification provision is modified to allow
      governmental agencies and low income clients to continue to use those agencies in
      the event of litigation.

   5. Attorneys must advise clients of alternatives (such as litigation, arbitration and
      mediation) and screen for domestic violence and coercive behavior (seeking true
      informed consent).

   6. Negotiations are privileged (similar to mediation process).

   7. Standards of Professional Responsibility are not changed by the Act.




                                               2
Advantages to Collaborative Law

      1. It may save parties time and money by focusing attention on settlement from
         the outset.

      2. It may reduce animosity of a public airing of grievances (especially important
         in family disputes).

      3. Can generate creative settlement options for both sides that is better than a
         court judgment.


Concerns

Many of the concerns for those of us practicing in the trust, estate and guardianship
litigation areas relate to the fact that collaborative law was developed in the context of
divorce law. The following are three concerns specific to our area of practice, and then a
summary of more general concerns raised by others and the response of UCLA
supporters to those concerns.

   1. Statutes of Limitations and Other Deadlines

      Especially in the probate process, we have short and sometimes unwaivable
      (jurisdictional) deadlines intended to encourage certainty in the probate process.
      Thus, for example, most states have very short (and in some cases, jurisdictional)
      statutes of limitation for a) bringing a will or trust contest, b) filing claims, or c)
      bringing actions on behalf of an estate. In some instances, tolling agreements
      would not work to stop the running of the statute of limitations. The concern here
      is that the Act seems to suggest that no action should be filed even before
      engaging in the Collaborative Law process. Unless a “protective” action could be
      brought in advance of the collaborative law agreement (and the allegations in that
      public complaint could derail the effort at collaborative law), it is unlikely that the
      collaborative law process could be completed in a timely manner.

      A simple solution to this problem may be that the potential plaintiff/petitioner
      simply file the action and then seek a stay to pursue collaborative law.

   2. Confidentiality in the Fiduciary Context

      Section 16 of the Act states that “A collaborative law communication is
      confidential to the extent agreed by the parties in a signed record or as provided by
                                             3
   law of this State other than this Act.” As a fiduciary may have a duty of disclosure
   to all beneficiaries, a confidential agreement with one beneficiary may be
   improper. The problem here is probably less with the language of the Act (which
   makes confidentiality voluntary) and more with what we understand to be the
   “typical” collaborative law agreement, which provides for such confidentiality.


3. Multiple Proceedings

   Consider the not unusual case where you represent the trustee in a fee dispute, and
   you enter into a collaborative law agreement to address that dispute. But then you
   also have a construction issue, and maybe an objection to the trustee’s accounting.
   Is the attorney disqualified from all of these matters? As one of our committee
   members put it: “The risk in collaborative law for real people is that they will
   have to spend their own money on other attorneys of they go forward, which is a
   disincentive to litigate. But fiduciaries are supposed to watch what they spend
   because they are using someone else’s money….” And keep in mind that the
   implicit consent of the beneficiary involved does not bind all of the other
   beneficiaries.

4. Non-T&E Specific Concerns raised by the Litigation Section, and Summary of
   Response from Supporters of the Act

   a. The Act has the effect of modifying the Rules of Professional Conduct, taking
      that job away from state courts and handing it to state legislatures.

      Response: Section 13 of the Act specifically states that it does not modify
      current rules, and the ABA Formal Opinion (and all states other than Colorado)
      found that the practice was not inconsistent with the rules

   b. It forces lawyers to withdraw from a case;

      Response: The process is voluntary. Limited representation is specifically
      allowed by the rules (see MRPC 1.2)

   c. True informed consent is very difficult to achieve;

      Response: No different than in litigation in general (joint representation
      agreements, for example)


                                        4
     d. Collaborative law leaves clients vulnerable if there is a power imbalance;

        Response: No more so than in any litigation or settlement context.

     e. Collaborative law may coerce a settlement;

        Response: No more so than in any settlement context.

     f. The affirmative obligation to disclose information related to the case puts
        lawyers in an “impossible situation”;

        Response: See the Federal Rules of Civil Procedure.

     g. The provisions regarding waiver of the evidentiary privilege are too
        complicated.

        Response: They are complicated, and follow the provisions of the Uniform
        Mediation Act.

Recommendation

     The Fiduciary Litigation Committee recommends that the Executive Committee
     endorses the Act with reservations specific to the trust and estate practice area.
     We caution any practitioners in the probate and fiduciary litigation area to be
     mindful of the following issues:

            1. Short and sometimes unwaivable (jurisdictional) deadlines intended to
               encourage certainty in the probate process.

            2. Confidentiality agreements that bind and limit the ability of a fiduciary
               to communicate with all beneficiaries, when the fiduciary may have a
               duty to openly and fairly communicate with all.



            3. It is not unusual for an attorney to be involved in many aspects of an
               estate and trust administration. For example, while a trust contest may
               be the direct subject of a collaborative law agreement, how does that
               agreement impact the ability of the attorney to represent the fiduciary in
               an accounting, claim, citation or fee petition that may have overlapping
               issues involving the same parties?.

                                           5

								
To top