Vermont Legislature SmartTranscripts:

[Sen. Nader Hashim (Chair, Senate Judiciary Committee)]: We're alive. Okay. Good morning. We're back in Senate Judiciary on February 10 at 10:32. We have s one seventy nine in front of

[Sen. Nader Hashim (Chair, Senate Judiciary Committee)]: us and we have Matt Getty here to testify. Just so the committee's aware, there's some printing difficulties. So we have the bill as introduced from pages one to 13, but we're missing the last three pages. I'm sure we'll get those shortly. And Mr. Getty, we haven't yet gotten a walkthrough from our legislative council on this bill. So this is, I believe the first time we're laying eyes on it. So happy to hear your testimony, but also if you wanna provide the full committee just a general overview on what this bill does and what it proposes to fix, if anything, and yeah. So the floor is yours.

[Matthew (Matt) Getty, Esq. (Chair, VBA Study Committee on Disclaimers)]: Okay. I can do that. I guess first, let me just introduce myself. My name is Matt Getty. I'm an attorney in Rutland focusing on estate planning and and probate. I was the guess the foolishly volunteered for the role of chairman of the Vermont Bar Association study committee on this topic that reviewed the uniform bill, proposed modifications to it for Vermont purposes, and passed it on to you folks. I want to just briefly thank the other members of the committee that included Mark Langen of DNC, who is the chair of the Trust and Estate Committee or section of the Bar Association, Mark Melendy from Sheehy for Long and Beam, Alison Wells Sherman of Downs Rackland Martin, Carol Pfeiffer, also of Dency, Steve Schindler, and Jim Dingley. So, I can certainly provide you with an overview. I will I just want to highlight, I guess, what I see as the main points of this bill, and then we can go through it in more detail section by section, if you like. So, I guess the place to start is what is this about? What is a disclaimer? A disclaimer, for purposes of this statute, is a refusal to accept something. So typically, this would arise in, you know, say a probate situation where maybe you're inheriting something that you don't want, and that there could be a tax and estate planning reason why that's the case, or there could be other reasons why you don't want to receive an asset. And so the law allows you to disclaim that asset, which means basically throw your hands up, I don't want it hot potato, it goes to somebody else. And the law then says what happens in that scenario. So Vermont has an existing statute on this subject, which was modeled on an earlier Uniform Act, and that was adopted, I believe, in 1985. The current version of the Uniform Act on this subject, which you're reviewing now, was originally adopted by the Uniform Law Commission in 2002. There have been a few technical amendments to it since then, but it's been around for a while. So it's actually been around now longer than Vermont's current law was on the books at the time that this version was adopted by the ULC. So, we're a little bit behind the times from that perspective. So, one of the characteristics of Vermont's existing statute and other state statutes that were adopted around that time is that they tended to be drafted, geared towards matching the requirements of federal tax law. And so one of the key features of disclaimer law for tax purposes is that the disclaimer must be made within nine months of usually the individual's death. And so that's what Vermont law said. There was a nine month clock that was ticking on your ability to disclaim. However, our existing law in section nineteen fifty two actually contained a provision that was inconsistent with federal tax law with regard to future interests, which we don't really, I think, need to get into in detail here. But the notion is that the state law focus on the nine month timeline was really unnecessary. It may be the case that most disclaimers are made for tax purposes, but there can be situations where that's not the case. For someone who is looking to make a tax qualified disclaimer, those folks should be looking to the tax law for guidance on how to do that. And so one of the major things that this law does is remove that nine month deadline. The state law requirements for making a disclaimer would no longer be tied to or trying to match the federal tax requirements. If somebody wants to make a tax qualified disclaimer, they look to the tax law for that only and hopefully thereby avoid any conflicts between the state and federal law. So, currently, just to emphasize, under state law, there is no provision for making a disclaimer outside of the nine months for non tax purposes. So if, say, there is a delay in getting a probate started and, you know, you're you're well, frankly, you could be nine months fast to a person's death before a probate gets started for some reason. But maybe you're less than that. Maybe it's seven months after. And then but by the time somebody realizes what they might be getting and that they don't want to receive it's too late to disclaim, and then they need to receive a distribution and turn around and make a gift, etcetera. So this would allow a disclaimer in that scenario, even if the nine months has passed.

[Sen. Nader Hashim (Chair, Senate Judiciary Committee)]: Matt, can I interrupt real quick? Yep. I just wanna make sure I'm understanding that if it's that the purpose of the disclaimer is to is as it relates to the states and and trusts, or is it as it relates to taxes? And I think I'm still a little unclear.

[Matthew (Matt) Getty, Esq. (Chair, VBA Study Committee on Disclaimers)]: So I'm not sure if I heard the middle of your question with the door open, but there could be estate tax planning reasons why you would want to disclaim, but there could be other reasons. For example, you know, you're going to inherit a toxic waste pit and you don't want it. The law would allow you to disclaim it. For tax and estate planning purposes, I mean, I can get into that more if folks are interested, but the general idea is that you might disclaim something to avoid it being added to the value of your estate so that let's say, so for Vermont purposes, the individual estate tax exemption is $5,000,000 So if the value of your estate is more than that, you may wish to not receive something and maybe have it skip you and go to your children or whatever other effect might occur under the decedent's will, but you may just not want to receive an asset that is going to be subject to the estate tax. And so you have the ability to do that under current law, and so one of the points I wanted to make was that this statute, this amendment, is revenue neutral for the reason that it makes no change to the existing tax law. The existing law that applies to GIS and state tax in Vermont is still the same. This just updates and gives more detail to how a disclaimer can be made, which we can talk about that as well. But it's really putting more meat on the bones of what the current statute has, and it's removing the nine month deadline that we just discussed. Those are, I would say, the main highlights.

[Sen. Nader Hashim (Chair, Senate Judiciary Committee)]: So

[Matthew (Matt) Getty, Esq. (Chair, VBA Study Committee on Disclaimers)]: as I just indicated, this statute does provide more detailed rules on how one goes about making a disclaimer for various types of assets and how you would effectively deliver that disclaimer in order to provide notice to people that need to know that it's been done. And included in those new rules are rules on disclaimers for jointly held property, rules for disclaimers by trustees of trusts who might be, you know, in a scenario where a trust might be a recipient of property, as well as new rules for disclaimers of powers of appointment, which is, again, a tax related subject that's not treated in our current statute. The statute includes a provision expressly stating that an effective disclaimer is not a transfer assignment or a release, which I believe was in our current statute, but that's found in Section 40 one-five, subparagraph G, of this bill. The overall statute is longer as a result of these provisions being included, but in my opinion, it is easier to use as a result because you can kind of go through the table of contents and say, like, here's my situation. I've got this particular asset that I want to disclaim. How do I deal with that? What do I need to do in order to make that disclaimer and effectively deliver it? And then, yeah, the last bullet point on my list of highlights was the revenue neutrality that we talked about. So, we can go through the provisions section by section. I do want to highlight for you folks, I had sent over a suggested edit to the House. They have a companion bill over there, and that was in section 4,105 subparagraph C, and that was the suggestion is to remove the words or incapacitated from that paragraph, That change is suggested in consultation with the Uniform Law Commission as well as our study committee. That's a provision where we had proposed a deviation from the standard language and the uniform law. We were inspired by a provision in another state. And on further reflection, we think that the removal of those two words from that section would avoid some potential ambiguities in the future. So I guess I'll pause there if you have questions on anything I've said so far. Otherwise, I can do more of a walkthrough section by section.

[Sen. Nader Hashim (Chair, Senate Judiciary Committee)]: Yeah, I think well, committee, are there any questions? Don't think we have any initial questions. If you wanna provide a general overview, I mean, we'll also be getting a walkthrough from our legislative council. But if you wanna provide your perspective on the different sections and, you know, summary of what each section may address, that would be that would that would be helpful.

[Matthew (Matt) Getty, Esq. (Chair, VBA Study Committee on Disclaimers)]: Yeah.

[Sen. Nader Hashim (Chair, Senate Judiciary Committee)]: Oh, I see You

[Matthew (Matt) Getty, Esq. (Chair, VBA Study Committee on Disclaimers)]: do that.

[Sen. Nader Hashim (Chair, Senate Judiciary Committee)]: One quick I also see our lead counsel popped onto the Zoom. I don't know if Eric

[Eric Fitzpatrick (Office of Legislative Counsel)]: Yeah. Can can you hear me okay, senator Hashim?

[Sen. Nader Hashim (Chair, Senate Judiciary Committee)]: Yes. Yes. I I can hear you. I know we don't have you on the schedule or the agenda for today. And, yeah, I don't wanna put you on the spot. I'm I I think maybe I just made an error and didn't schedule a legislative council walk through prior to witness testimony, but happy to in the future.

[Eric Fitzpatrick (Office of Legislative Counsel)]: Right. But actually and I'm happy to do that. But also, you're actually you're you're right. And I think I mentioned this to Emery that usually with uniform acts like this, the initial walkthrough is done by, because they're not drafted by us, we certainly go through them for formatting and to make them consistent with the numbering and those sorts of issues related to the Vermont statutes. But generally speaking, the first walkthrough is done by the chair of the VBA committee that drafted the language in the first instance, which as Matt pointed out, he was fortunate enough to be that person this time around. So yeah, I think you're right on the money to go ahead and

[Sen. Nader Hashim (Chair, Senate Judiciary Committee)]: Thank you.

[Eric Fitzpatrick (Office of Legislative Counsel)]: I'm sorry I'm not there. For some reason, I can't get my camera to work. So I'm glad you can hear me at least.

[Sen. Nader Hashim (Chair, Senate Judiciary Committee)]: No worries. No

[Sen. Nader Hashim (Chair, Senate Judiciary Committee)]: worries. Thank you. Yeah. Thank you. You want to proceed? Happy to get the walkthrough.

[Matthew (Matt) Getty, Esq. (Chair, VBA Study Committee on Disclaimers)]: Sure. So section one is the title. That one's easy. Section two, definitions are is generally self explanatory. I would note that we did add a definition of the term personal representative because that is used various places throughout this act, but it's not otherwise used in Vermont law. We've added a provision in here to aid understanding. Section oh, and I would just add, as I'm sort of scrolling through, I've got all the comments, the uniform comments and the comments that we added in front of me, and I don't know what the plan on that would be. I know that when the Uniform Trust Code was adopted, all of the comments, including specific Vermont comments, were published in the official books, which can be quite helpful. Course, anyone could go to the Uniform Law Commission's website and look up what their comments are, but those are really key in some cases to interpreting the understanding of the provisions of the law and Vermont comments point out, you know, where we may have made changes.

[Eric Fitzpatrick (Office of Legislative Counsel)]: So could I interrupt there just for a moment? Yeah. Senator Hashim?

[Sen. Nader Hashim (Chair, Senate Judiciary Committee)]: Yes, please.

[Eric Fitzpatrick (Office of Legislative Counsel)]: Just so Matt knows, and we hadn't had a chance and the committee knows too, our office's procedure on that is that if if the uniform act does ultimately pass the legislature and signed by the governor and becomes law, then at that point in time, early summer, mid summer, that sort of thing, if the committee wants to have the comments included, then they would send them to me through our office. And same thing if you wanted to have Vermont comments that were specific to maybe changes you may have made or whatever instances you thought that that would be helpful, you'd send those along as well. And then we work with the publisher to make sure that they're published in the Green Book. So that's how that works, just an FYI.

[Matthew (Matt) Getty, Esq. (Chair, VBA Study Committee on Disclaimers)]: Excellent. Thank you. All right. Section three, self explanatory. Section four says that other law may supplement provisions of the statute if there are developments in common law that might apply to the situation. Addiction five, power to disclaim. This section describes generally the right to disclaim and who may do it. We added subparagraph C, which was inspired by another state, and this is where I was mentioning earlier.

[Sen. Nader Hashim (Chair, Senate Judiciary Committee)]: What page are you on?

[Matthew (Matt) Getty, Esq. (Chair, VBA Study Committee on Disclaimers)]: Well, let's see. Let me flip over to the act version of this.

[Sen. Nader Hashim (Chair, Senate Judiciary Committee)]: If we're looking at the bill that's introduced and there's only one section. Okay.

[Matthew (Matt) Getty, Esq. (Chair, VBA Study Committee on Disclaimers)]: The version I'm looking at is section forty one zero five. And that's, let's see, page three, it starts on the bottom of page three.

[Sen. Nader Hashim (Chair, Senate Judiciary Committee)]: Got it, thank you.

[Matthew (Matt) Getty, Esq. (Chair, VBA Study Committee on Disclaimers)]: Okay, so in subparagraph C is where I'm suggesting to remove the words or incapacitated, which appears on the third line of that subparagraph. So just generally in this section five, again, setting forth your requirements, there's no nine month deadline, but this does describe the basic requirements for the content and delivery, which is detailed further elsewhere in the statute. And again, this section provides that a disclaimer is not to be treated as a transfer of an asset. We also the other change that we made from the Uniform Act is we expanded the meaning of the term signed in order to accommodate physical limitations for anyone who is trying to execute a disclaimer, and so the language we use there is consistent with our will statute. Section six, four thousand one hundred six, I guess. This is the section that describes what happens as a result of a disclaimer, So it tells you who gets the property if you disclaim it. And frankly, you just you kind of have to walk through the scenarios there to figure out the result, I don't think that we need to go through it, but that's what that section is for. Section seven speaks specifically to jointly held property. There was some language in existing law, but this language is much more detailed, and again, this is one where the comments will be key because it gives a lot of explanatory examples on how this works. And the language in this provision is intended to be consistent with federal tax regulations. Section eight talks about disclaimers by trustees, so if property is granted to a trust, the trustee of that trust can disclaim the asset. Section nine speaks to powers of appointment and other non fiduciary powers. So if say a trust grants an individual a power to direct where property goes, that's what a power of appointment is, or some other power that they can disclaim the power that the trust gives them and again typically there is a tax reason why they might want to do this because maybe they've been given a power that causes property to be included in their estate for estate tax purposes and they don't want that to happen, so they disclaim the actual power itself.

[Sen. Nader Hashim (Chair, Senate Judiciary Committee)]: Matt, can I interrupt real quick and go back to 4108 There one second? So I see that if a trustee disclaims an interest in property, it would have otherwise become a trust property. The interest doesn't become a trust property. And I can't find the other section where I think it described what would happen. But if it doesn't become a trust property, then what happens to that interest?

[Matthew (Matt) Getty, Esq. (Chair, VBA Study Committee on Disclaimers)]: So that would be the previous section, section seven, four thousand one hundred seven. You'd Oh, sorry, back to two sections. So in section six, you would go through that.

[Sen. Nader Hashim (Chair, Senate Judiciary Committee)]: Okay. Is that line 17? It's not an individual?

[Matthew (Matt) Getty, Esq. (Chair, VBA Study Committee on Disclaimers)]: Yeah, hold on. Let's see. Yes. I think that's correct.

[Sen. Nader Hashim (Chair, Senate Judiciary Committee)]: Thank you.

[Matthew (Matt) Getty, Esq. (Chair, VBA Study Committee on Disclaimers)]: Okay. Let's see. Section 10 allows for disclaimers by an appointee, meaning a person who could receive property by virtue of somebody else exercising a power of appointment. So we're getting a little bit attenuated here, but you know, it just is it's another scenario where a property might be coming to you and you can refuse to receive it. And that's a subject that was not addressed in current statute. This section also makes clear that you had the power to make that disclaimer either before or after the appointment. And we made a small modification to the language there that we felt made that section a little easier to understand. Section 11, it has to do with the disclaimer of fiduciary powers. So here again, you could have an individual serving as a fiduciary who does not want to have a particular power, and that can occur for, again, for tax related reasons, but conceivably there could be non tax related reasons why a trustee doesn't want to have the power to do certain things. And so they can disclaim that power under that section. Okay, 12 speaks to delivery or filing, and so this is the section that tells you what to do with your disclaimer in order to effectively put other people on notice. So it goes through various, you know, specific directions for how to deal with different kinds of assets. We added a specific reference to enhanced life estate deeds since those are you know, have particular statutory authority under Vermont law. The Uniform Act had it was organized a little bit differently around subparagraph G having to do with beneficiary designations. Some states have what I think were called pay on death deeds, which, as I understand it, are effectively the same as enhanced life estate deeds, but they call them something else, and there's authority for them under the Uniform Probate Code, which we don't have, so we just changed the language there and reorganized a couple of paragraphs to specifically reference Vermont's enhanced life estate deeds, and we added subparagraph H to deal with real property generally. And this provision requires that when disclaiming an interest in real property that the disclaimer be recorded, which is the case under current law, and we wanted to preserve that requirement so that we have clear land records. Section 13 speaks to when a disclaimer is barred, meaning it's no longer possible to disclaim. A disclaimer that is barred is not effective as a disclaimer, which again means a refusal to accept the property. However, it will constitute an effective transfer to the persons who would have received the property had the disclaimer been effective. And this was a provision where our eyes were crossed when we first read it, and there was, some discussion trying to digest and understand what was happening here. And what it is saying is if you botch your disclaimer, okay, it's not going to be effective as a refusal, as a non transfer, as stated earlier in the statute. Instead, what you're effectively doing is receiving the property and then transferring it to the people that would have received it had the disclaimer actually been effective. So that has, of course, tax law implications, but also it just provides some clarity between the parties as to who has the right to the asset. So, you know, again, this section is speaking to what can bar a disclaimer, but time is no longer one of those elements for state law purposes. So, is another change here for Vermont or a change to Vermont law. So, we followed the Uniform Act language here, and this is we submitted a comment on this, which you may not have in front of you, but so we followed the Uniform Act law, which is a change to our existing statute, under existing law, there is a bar of a disclaimer. You can't disclaim property to the extent of a lien on the property. We didn't understand the purpose of that provision. The Uniform Act didn't have any such limitation. We went with the Uniform Act, and it's my understanding that the Bankers Association Sports Bill, so I assume it didn't cause them any heartburn either. But I do want to point that out because it is one of the deviations from current state law.

[Sen. Nader Hashim (Chair, Senate Judiciary Committee)]: Do you share where exactly that is? The AGI number? So let's see.

[Sen. Nader Hashim (Chair, Senate Judiciary Committee)]: So

[Matthew (Matt) Getty, Esq. (Chair, VBA Study Committee on Disclaimers)]: I think this is more of an absence of language, right? So our current state law says you can't do this, but this section says 41.13 which begins, it's page 13, line 13 is where the section begins. And so they're just there's no language there speaking to a property that has a lien on it. And so that into the current statute. No, I guess they don't have that citation. I think it's in

[Sen. Nader Hashim (Chair, Senate Judiciary Committee)]: So just so I'm understanding it's the overall change because the lien provision that you mentioned is that if this were to pass, then you could disclaim property that has a lien on it?

[Matthew (Matt) Getty, Esq. (Chair, VBA Study Committee on Disclaimers)]: Correct.

[Sen. Nader Hashim (Chair, Senate Judiciary Committee)]: Alright. Thank you.

[Matthew (Matt) Getty, Esq. (Chair, VBA Study Committee on Disclaimers)]: And I don't have the the current law section number at my fingertips, but I can get that to you if you like.

[Sen. Nader Hashim (Chair, Senate Judiciary Committee)]: No worries. Thank you.

[Matthew (Matt) Getty, Esq. (Chair, VBA Study Committee on Disclaimers)]: So section 14, the wording is a little dense, but what it's really saying is that if you make a disclaimer that is effective for federal tax purposes, then it will also be effective for state purposes. So even though the state law requirements no longer parrot the federal requirements, if you have met the federal requirements, then you will also have a qualified disclaimer for state law purposes. The reason for that being the federal law requirements are more rigorous than the state law requirements. Section 15 says that, in fact, you can record a disclaimer. If there's an instrument transferring property that you're disclaiming that could be recorded, then you can record your disclaimer. But we did, as mentioned earlier, in the section on delivery, we did require that disclaimers of real property interest be recorded. So section 15 says that the failure to record does not affect the rights of the parties, but again, did require it elsewhere because we want people to record so that we have clear land records. Section 16 says that if you are still within the nine month period for disclaimer under the current law, that if this law passes, you would still have the right to disclaim. But if your nine month period had already expired, this law doesn't revive your right to disclaim. And Section 17, Relation to Electronic Signatures in Global and National Commerce Act. I know nothing about that act. However, my understanding is that the provisions of this statute are a deviation that would that is a permissible preemption of that federal law. And so the federal law says if you state in your state law that you are preempting those provisions, then that's okay. So uniform law included it, and we've included it here. The remaining sections 18 through 21, I don't think there's anything we need to talk about there.

[Sen. Nader Hashim (Chair, Senate Judiciary Committee)]: I think severability clause, I'm not sure that it's necessary. I think we have a all encompassing severability clause that applies to anything and everything that we pass. I don't know if I'm oversimplifying it, but I think it's in title one section two fifteen, maybe two fifteen. But either way, it's a small technical change that we'd probably make.

[Matthew (Matt) Getty, Esq. (Chair, VBA Study Committee on Disclaimers)]: Leave that one to Eric.

[Sen. Nader Hashim (Chair, Senate Judiciary Committee)]: Committee, any questions for Matt?

[Sen. Nader Hashim (Chair, Senate Judiciary Committee)]: Okay.

[Sen. Nader Hashim (Chair, Senate Judiciary Committee)]: Well, thank you, Matt. We're gonna try hearing from some other witnesses too just to make sure we're fully wrapping our heads around this and, you know, what it you know, the the full implications of it. So, yeah, thank you for the walk through. Bob or Chris, I see you folks in here. Do you did you wanna chime in at all?

[Chris D’Elia (President, Vermont Bankers Association)]: Sure. Yeah. For the record, Christina, your president from our Bankers Association. So as is the tradition when we have bills like this working with the bar association, we circulated it to our folks in the trust community who responded back with no concerns about the bill. The one thing I am just gonna double check on is the lean piece that was just mentioned by Matthew, but aside from that, we see no issues with the bill, and I'll get back to you as soon as I can Thank

[Sen. Nader Hashim (Chair, Senate Judiciary Committee)]: you. You committee any

[Sen. Nader Hashim (Chair, Senate Judiciary Committee)]: questions? Okay. Thanks. Bob, did you have anything or? Nope.

[Bob (unidentified banking representative)]: I just refer you to Pat Geddy and the committee. Okay. Great. Thank you. So committee, we try

[Sen. Nader Hashim (Chair, Senate Judiciary Committee)]: to think of any other witnesses that we can get in on this just to broaden our perspective on it. And we do have Katie McLennan coming in at 11:30. So if we can be back right at 11:30, talk about h 05:45. Think I it's doing a drive through, fly by, something along those lines.

[Sen. Nader Hashim (Chair, Senate Judiciary Committee)]: Drive by. Yeah. Maybe maybe we don't wanna do those. So, yeah,

[Sen. Nader Hashim (Chair, Senate Judiciary Committee)]: 11:30. We'll be back.