MINUTES OF THE
SENATE Committee on Judiciary
Seventy-First Session
May 8, 2001
The Senate Committee on Judiciarywas called to order by Vice Chairman Jon C. Porter, at 8:30 a.m., on Tuesday, May 8, 2001, in Room 2149 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. All exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.
COMMITTEE MEMBERS PRESENT:
Senator Mark A. James, Chairman
Senator Jon C. Porter, Vice Chairman
Senator Mike McGinness
Senator Valerie Wiener
Senator Terry Care
COMMITTEE MEMBERS ABSENT:
Senator Maurice Washington (Excused)
Senator Dina Titus (Excused)
GUEST LEGISLATORS PRESENT:
Assemblyman Mark A. Manendo, Clark County Assembly District No. 18
Assemblyman David E. Goldwater, Clark County Assembly District No. 10
STAFF MEMBERS PRESENT:
Bradley A. Wilkinson, Committee Counsel
Allison Combs, Committee Policy Analyst
Carolyn Allfree, Committee Secretary
OTHERS PRESENT:
Laurel A. Stadler, Lobbyist, Mothers Against Drunk Driving, Lyon County Chapter
John P. Sande III, Lobbyist, Nevada Bankers Association
Richard W. Horton, Concerned Citizen, Attorney
James F. Nadeau, Lobbyist, Nevada Sheriffs and Chiefs Association, and Washoe County Sheriff’s Office
Steven D. McDonald, Administrator, Division of Unclaimed Property, Department of Business and Industry
John E. Adkins, Chief Deputy Treasurer, Office of the State Treasurer
Vice Chairman Porter opened the hearing on Assembly Bill (A.B.) 125.
ASSEMBLY BILL 125: Prohibits business from employing, allowing or using person less than 18 years of age to distribute promotional materials that include offer for alcoholic beverages. (BDR 15-131)
Assemblyman Mark Manendo, Clark County Assembly District No. 18, said A.B. 125 is the result of complaints from constituents that underage individuals are being hired by businesses to distribute alcoholic beverage coupons to the public. He added that the bill has already been amended to include only individuals under 18 years of age, rather than under 21.
Senator McGinness asked whether this bill applies only to businesses and only to alcohol, and does not apply to promotional items for organizations such as Little League or Girl Scouts. Assemblyman Manendo confirmed that the bill applies only to promotional items relating to alcohol.
Laurel A. Stadler, Lobbyist, Mothers Against Drunk Driving (MADD) Lyon County Chapter, spoke in support of A.B. 125 and said it is certainly inappropriate, if not currently illegal, for young people to be distributing promotional materials for alcoholic beverages. She said the use of young people to advertise perpetuates the false image of the combination of youth and alcohol, and anything that will give a clear message that youth and alcohol do not mix is a good thing. She added that she would like to have seen the age 21 limit included, because state law clearly prohibits anyone under 21 from possessing, purchasing, or consuming alcohol.
Vice Chairman Porter closed the hearing on A.B. 125 and opened the hearing on A.B. 325.
ASSEMBLY BILL 325: Revises provisions concerning rule against perpetuities. (BDR 10-46)
John P. Sande III, Lobbyist, Nevada Bankers Association, stated he believes Assembly Joint Resolution (A.J.R.) 4 of the Seventieth Session, a constitutional amendment to eliminate the rule against perpetuities, has already been processed.
ASSEMBLY JOINT RESOLUTION 4 OF THE SEVENTIETH SESSION: Proposes to amend Nevada Constitution to repeal constitutional rule against perpetuities. (BDR C‑914)
Mr. Sande explained A.B. 325, as follows:
A.B. 325 goes into effect only in the event that A.J.R. 4 [of the Seventieth Session] . . . is approved by the voters at the general election on November 5, 2002 . . . If this bill passes . . . there would still be a statute, Nevada Revised Statutes [NRS] 111.1037, that sets forth certain time periods in which a property interest must vest. This would say that that section would not apply if you have certain protections, which are set forth in section 7, on page 2, lines 13 through 28. Basically, you could have a trust that would go on forever, a so-called “dynasty trust,” as long as the trustee has the unlimited power to sell assets of the trust, or at least one person, including the trustee, has the power to terminate the trust; and, also, that the trust is created after December 1, 2002, and it specifically says that the rule against perpetuities does not apply under NRS 111.1031. Then, there are certain requirements as to how the trust has to be executed . . .
This is a protection that would be put in if the constitutional amendment is approved. Obviously . . . there has to be some education of the voters because . . . the rule against perpetuities is very difficult to understand.
Senator Care asked what the protections are and why someone would need a “dynasty trust.” Mr. Sande answered that existing law imposes an estate tax against certain assets, and there is a generation-skipping tax, which is the highest rate, at 55 percent. He said, currently, $1 million can be allocated as a generation-skipping tax exemption and put into a trust to go on for a number of generations. The protection is more from a philosophical standpoint, he said. If property is put into a “dynasty trust,” generation after generation, the trustee, or someone, should be given certain powers to sell assets and terminate the trust. “That has been the argument for the rule against perpetuities . . . that we do not want to allow people to put away property for generations . . . We are saying here . . . we are going to eliminate the rule against perpetuities but, if you are going to take advantage of not being subject to that, then you have to have certain powers in the trust document that would allow the trustee to sell assets . . . or give at least one person, including the trustee, the power to terminate the trust,” he said.
Senator Care asked whether Nevada has any case law in which a trust was created in another jurisdiction and one of the beneficiaries was in Nevada. Mr. Sande said he was not aware of any. He said the domicile of trust would govern the rule against perpetuities. That may be why people are moving trusts to other locations, he said. “Since we have been very interested over the years in trying to make it attractive to people to locate financial assets in the state of Nevada . . . the Nevada Bankers Association would support this move,” he said. Senator Care inquired about the $1 million cap on trusts, and Mr. Sande replied that a federal statute sets that cap. He explained as follows:
It used to be that you just had the estate tax, which is a graduated tax that goes up to 55 percent. Then . . . the federal government said, “We do not like the idea, because you could set up a trust . . . and not give the beneficiaries of the trust sufficient control over the trust so that they would be deemed to be owners of that if they died.” I will give you an example: You set up a trust “for my children” and give the trustee “sprinkling” powers to pay out income and principal to those children for their fair maintenance and support; on their death it goes to the grandchildren; on their death it goes to the great-grandchildren. The IRS (Internal Revenue Service) came up with a provision that says, if you have anything that skips a generation . . . you will be taxed on that as a generation-skipping tax at the highest estate tax rate . . . So, the IRS gives you a $1 million exemption . . . If you set up a dynasty trust, you would allocate that $1 million exemption to the dynasty trust so that it could escape taxation forever. But, that is the most you can give without being subject to generation-skipping tax, under current law.
Senator Care speculated that law firms and trust departments in banks would take advantage of the proposed law. Mr. Sande replied that it would help the residents of Nevada utilize existing tax laws to their benefit. Senator Care noted the trust must be executed in Nevada, but residency is not required, and that at least one trustee must be domiciled in the state. Mr. Sande noted if A.J.R. 4 of the Seventieth Session passes and this bill is not passed, then the protections this bill provides for would not be in place.
Assemblyman David Goldwater, Clark County Assembly District No. 10, presented a packet illustrating the purposes of A.B. 325 (Exhibit C). He said the important point is that they want to make Nevada the best of the 50 states in which to locate assets. Nevada has inherent advantages over other states, he said, including a constitutional prohibition against an income tax and very favorable laws relating to financial services. He asked, rhetorically, “Why is this [A.B. 325] an advantage to the state?” and answered, “We recapture a lot of the estate tax that is paid . . . and a lot of those dollars go into . . . an endowment in higher education and . . . our K through 12 [kindergarten through twelfth grade] education budget.” He said providing strong statutory provisions, contingent upon the repeal of the constitutional prohibition of the rule against perpetuities, will enhance the state’s profile when it comes to locating estate assets here.
Richard W. Horton, Concerned Citizen, Attorney, said the law firm in which he is a partner, Lionel Sawyer and Collins, represents Capital Guardian Trust Company that, along with its affiliates, handles about $800 billion of other people’s money. A fair portion of that money is in the form of trusts, he said, and Capital Guardian, whose main office is in California, has moved many trusts from California to Nevada in order to avoid the California state income tax. Capital Guardian supports A.B. 325, he said. People interested in setting up these trusts would be encouraged to move to Nevada because the more connection the trust has with Nevada, the less likely it is to be taxed elsewhere.
Mr. Horton said it is his understanding that Assemblyman Goldwater introduced A.J.R. 4 of the Seventieth Session with the intent of removing the rule against perpetuities from the constitution and leaving it in the statute, then amending the statute to exclude trusts. He explained the history of perpetuities as follows:
The rule against perpetuities was developed in common law England to prevent the tying up of real estate for a long period of time. A custom grew in England, among people who owned a lot of land, of executing a will which would leave their property to, say, their eldest son, on his death to his eldest son, on his death to his eldest son, and so on into perpetuity, and nobody was able to sell or deal with the property . . . so the common law developed a law against perpetuities and that rule was brought to the United States.
The language of the proposed bill avoids this problem of having property tied up for a long period of time by requiring that the trust either have somebody who is living and available who could terminate the trust and thus enable the property to be sold, or to have a trustee with the power to sell property so that it would not continue to be tied up.
Mr. Horton submitted proposed amendments to A.B. 325, which do not conflict with the intent of the bill, but simply enlarge its scope to bring within it as many trusts as would be reasonable (Exhibit D). Vice Chairman Porter asked Assemblyman Goldwater if the amendments are acceptable to him, and Assemblyman Goldwater said they are.
Senator Wiener said she has concerns about the language in section 1, subsection 7, paragraph (a), concerning unlimited implied power. Mr. Horton explained an express power is one that is set out in specific terms, such as a power to invest in General Motors stock; an implied power is in more general terms, such as a power to invest in stock, not specifically stating General Motors stock, but implied. It is impossible when writing any document to anticipate all the circumstances that might occur in the future, he said. “Courts have constructed the concept of implied powers . . . to cover those unanticipated events, looking at the general body of the document itself and the provisions that are contained therein, and the court then saying, ‘Since the document says all of these things, it certainly implies that, had this question been raised, it would have said to handle that question in this particular fashion,’” he said. Senator Wiener asked whether there is some recourse in case of abuse by the trustee, and Mr. Horton said the people who would have recourse to the trustee’s exceeding his powers would be the beneficiaries. He explained the judiciary would not be involved except to handle the litigation; there is nothing in the bill that would require the state to police the trusts.
Senator Wiener asked whether the cause of action would be breach of the fiduciary responsibility, if there were a violation by the trustee. Mr. Horton said it would be a breach of contract. Assemblyman Goldwater stated the “express or implied” language is pretty much standard language throughout trust statutes.
Senator Care opined the notion of getting rid of the rule against perpetuities is going to be difficult and the language in a trust should be as express as possible. “What you do not want is a question as to whether a trustee can even invest in stocks . . . [but] you cannot have a trust that says the powers of the trustee are to handle the trust; that is pretty vague,” he said. Mr. Horton agreed that a well-drafted trust document would use express language, but things get overlooked.
Mr. Horton stated:
Thankfully, in Nevada, some wise person in the Legislature years ago created a statutory procedure which allows the trustee of a trust to go into any court in Nevada and say to the court, “I have a question about what my powers are and I need some instruction from you.” And, notice has to be given to the beneficiaries, and the court can then rule and give the trustee instructions. Careful trustees use that system frequently . . . just to make sure that things are being done right. The language “implied” is just to cover the situation where somebody has not drafted it as cleanly and as clearly as it should have been.
Assemblyman Goldwater, addressing Senator Care’s comment about perpetuities, clarified that it is not the intent of A.B. 325 to do away with perpetuities; it just intends to do away with the constitutional prohibition against perpetuities and to “tweak” the statutory language relating to perpetuities. Senator Care noted that in the proposed amendment to section 1, subsection 7, paragraph (b), the affirmative duty to say the rule against perpetuities does not apply is removed. He said, “Given the relative newness of this, you would want to say, ‘Let’s make it clear right now, perpetuities is not going to play a part in this trust.’” Mr. Horton agreed, saying the careful drafter might well do that. The problem is that some drafters are not careful and may get themselves and their clients trapped into a problem by failing to follow the recipe that this act might set forth. “So . . . if you want the rule against perpetuities to apply to the trust, you would have to expressly say it applies, rather than expressly saying it does not apply; it is a little safety net,” he said.
Senator Care said:
You also have in your amendment that [the trust must have] at least one trustee who is domiciled in Nevada, or an entity qualified to do business in the state. You can be qualified to do business in this state but still be domiciled in another jurisdiction, including a jurisdiction that still has the constitutional or statutory prohibition against perpetuities. Would that make a difference?
Mr. Horton answered it would not matter, but such an entity would have to qualify with the state under the trust company act (Chapter 669 of NRS), as a trust company. Assemblyman Goldwater added that some of the inherent advantages that Nevada offers require people to either move here or domicile their assets here.
Senator Wiener, noting section 1, subsection 7, paragraph (c), subparagraph (4), required a trust to have assets of which a substantial portion is located in the state, asked if “substantial” is more than half. Mr. Horton answered that “substantial” is more than a little. Assemblyman Goldwater said it would be for a court to interpret; and, real property, obviously, cannot be domiciled in Nevada unless it is Nevada property. Mr. Horton said the challenges he sees involving the rule against perpetuities will be challenges in courts in states that have a prohibition against perpetuities in trusts, with beneficiaries suing in North Carolina, for example, saying the Nevada trust should be held invalid. He said good lawyers will be telling people the greater the connection they have with Nevada, the safer their position will be regarding other states; so, move everything to Nevada. That gives Nevada that wealth to work with and those people to work with.
Chairman James closed the hearing on A.B. 325 and opened the hearing on A.B. 399.
ASSEMBLY BILL 399: Provides for civil liability for false reporting of crime or emergency. (BDR 3-422)
James F. Nadeau, Lobbyist, Nevada Sheriffs and Chiefs Association, and Washoe County Sheriff’s Office, presented the scenario of a man who staged his disappearance about 2 years ago, requiring the sheriff’s office to expend significant resources in an attempt to find him. The sheriff’s office had no ability to charge the man criminally, because he did not make a false report and the statutes dealing with false reports did not apply, nor was the sheriff’s office able to recover costs associated with the investigation, he said. The purpose of A.B. 399 is to provide for civil liability for a person staging such an emergency or knowingly making or causing to be made a false report that would require an emergency response, he said.
Senator Care asked whether section 1, subsection 4, really adds anything to the bill, and Mr. Nadeau explained, if an event is staged and nobody knows, there is no harm; this language requires that somebody has knowingly caused a person to initiate a false report, he said. Chairman James asked what the definition of “knowingly staged” is, and Mr. Nadeau said, because this would be a civil action, the courts can make that determination. “But, what do we mean by ‘knowingly staging’ an emergency?” Chairman James asked. Mr. Nadeau said it would be setting up the circumstances that would lead a reasonable person to believe some type of an emergency exists. Chairman James asked if it does not need to be based upon the intent of the person doing it. “If I drive up to Mount Rose and get out of my car and go on a 6-week camping trip without telling anybody, it is pretty stupid and it is pretty insensitive, but it is not a crime and I should not be liable if it causes a search,” he said. Mr. Nadeau said, “But we have [situations] where people will generate false letters, kidnapping notes . . . where they are doing things to set the stage; someone merely parking his or her car alongside the road is not setting up an expectation of emergency.”
Chairman James said the bill needs to be drafted in a way that targets the specific intent of the person doing the act. Mr. Nadeau asked whether the word “knowingly” did not do that, and Chairman James said that is his question; he does not know what “knowingly stages” means. He said it is not typical statutory language. Mr. Nadeau said he did not think that was in the initial bill draft, and Chairman James said he thought the language in the original bill was much more understandable. Mr. Nadeau said he thought the bill was amended to address concerns of the Assembly, and he agreed to try to have the bill redrafted in language closer to that of the original.
Chairman James closed the hearing on A.B. 399 and opened the hearing on A.B. 77.
ASSEMBLY BILL 77: Revises provisions governing unclaimed property. (BDR 10-410)
Steven D. McDonald, Administrator, Division of Unclaimed Property, Department of Business and Industry, stated Nevada is moving away from the 1995 Uniform Unclaimed Property Act, which has the dormancy period for unclaimed property set at 5 years, and is moving to 3 years in the categories covered by A.B. 77. Chairman James asked whether most unclaimed property is securities and instruments held in trust and unclaimed under a trust provision or will. Mr. McDonald said the bulk of unclaimed property is intangible property, such as checking accounts, savings accounts, annuities, unclaimed death benefits, mutual funds, stock, and those sorts of things. If there is no name or address for the property, the Supreme Court of the United States has ruled that the property will go to the state in which the corporation is domiciled, he said. “What does Delaware do?” Chairman James asked. Mr. McDonald said Delaware’s dormancy periods are generally 5 years. He said Senate Bill (S.B.) 489, which was just passed, moves Nevada incrementally toward the 1995 act. “That is where we want to go, but if this body feels that the 3-year dormancy period is appropriate, then I will enforce it,” he said.
SENATE BILL 489: Makes various changes regarding powers and duties of state treasurer and revises Uniform Disposition of Unclaimed Property Act. (BDR 18-360)
Senator Care asked what the likelihood is for someone who has remained absent for 3 years to surface in the fourth or fifth year. Mr. McDonald said that the sooner his office gets the property and the sooner they can try to locate the people, the more likely will be their success. Senator Care noted the bill provides that the act becomes effective upon passage and approval, and asked, “If someone by June 1 of this year hits the 3-year period, the bill becomes effective on June 15, and it is no longer 5 years, [does] that person get the benefit of the 5 years?” Mr. McDonald said it is his understanding that the person would not get the benefit of the 5 years. Senator Care stated, “You have got 5 years now, but come the effective date of this bill, you have got 3, and if your 3 years are up, too bad.” Chairman James pointed out that, when the 3 years are up, the money goes to the state and the state tries to find the people; the state goes through the procedure of trying to locate the people 2 years earlier. A certain amount of that is never going to be found and it will escheat to the state, he said. Mr. McDonald said, “Actually, it does not totally escheat; we hold it in perpetuity.” Chairman James asked, “We hold it in perpetuity, but it goes to the general fund; then, if somebody comes and claims it, we have to indemnify them?” Mr. McDonald explained, saying, “Once it goes to the general fund, the person who tries to claim it will come to me first, because I have the information, and then I send them [sic] to the controller’s office and they have to file a claim.”
Senator Porter asked what the value of the unclaimed property is that the state is holding, and what the fiscal impact is. Mr. McDonald replied that Nevada has collected more than $100 million over a 20-year period and returned about one third of it, so the state has had the use of about $60 to $70 million. Chairman James asked Mr. McDonald if he knew why the Treasurer wanted to amend A.B. 77 to take out money orders, travelers checks, and cashiers checks, which reduced its fiscal effect. Mr. McDonald said the industry came forward and said the dormancy period has worked for them and they did not want to see it changed. Since Nevada does not get a lot of that kind of property and the impact is minor, it was decided not to change it, he said.
John E. Adkins, Chief Deputy Treasurer, Office of the State Treasurer, said S.B. 489 does approximately the same thing A.B. 77 does, except that in S.B. 489 the changes were limited to three items so that the items match the 1995 act. He said the Treasurer’s office felt A.B. 77 was arbitrary and it will be a problem for the business industries to match the dates. “We will be sticking out like a big red flag; we will be different from everybody else. So, all of the audits, all of the reporting of the private industry with respect to unclaimed property will become a problem for the state of Nevada . . . We left everything alone, except for those three items . . . Those three items will generate approximately $10 million for the budget.”
Chairman James asked whether the 1995 act covers all categories, and Mr. Adkins said it does, “and all of those changed in 1977 vary from the 1995 act. Ours will follow the 1995 act, except for about two that do not agree,” he said. Chairman James asked where S.B. 489 is now, and Mr. Adkins said he did not know. He said the treasurer’s office wanted to put A.B. 77 and S.B. 489 together to see what was needed. He said S.B. 489 is needed because of other items that are in it.
Chairman James asked Mr. McDonald which committee processed S.B. 489, and Mr. McDonald said the bill was processed by the Senate government affairs committee and went to the Assembly government affairs committee.
Chairman James closed the hearing on A.B. 77. There being no further business, the meeting was adjourned at 9:55 a.m.
RESPECTFULLY SUBMITTED:
Carolyn Allfree,
Committee Secretary
APPROVED BY:
Senator Mark A. James, Chairman
DATE: