White Paper. Proposed Legislative Fix to Problems Associated with Missing Shareholders and Nonresponsive/Non-locatable Heirs.

Transcription

1 White Paper Proposed Legislative Fix to Problems Associated with Missing Shareholders and Cook Inlet Region, Inc. Doyon, Ltd. Calista Corp. I. Summary. This White Paper outlines the problems associated with, and proposed legislative fixes for, abandoned ANCSA stock as a result of missing Alaska Native Corporation (ANC) shareholders and nonresponsive/non-locatable heirs. Due to lapses in the law, the legal theories of escheat, presumptive death and abandonment do not currently provide adequate solutions for these situations. A Workgroup of three regional corporations was created to address the issues and devise a systemic solution. The Workgroup concluded that the best solution is amending the Alaska Probate Code in a manner that addresses these problems. The amendments, which would be permissive rather than mandatory, include: defining abandonment and establishing steps an ANC must follow prior to declaring stock abandoned, such that the shares could be canceled and accrued distributions deposited into the ANC s general fund; accounting for an affected shareholder or heir who may later make a claim to the stock and distributions; in instances of nonresponsive/nonlocatable heirs, allowing for an ANC to make a finding that the potential heir is a declared non-heir ; and specifying in the statute that escheat is a terminal act. II. Background. Alaska Native Corporations (ANCs) face basic scenarios associated with missing shareholders and nonresponsive/non-locatable heirs: (1) missing shareholders, where an ANC has no evidence as to whether the shareholder is alive or dead; and (2) nonresponsive/non-locatable heirs, where an heir is known or presumed to be alive but is nonresponsive or non-locatable. Due to lapses in the law, the legal theories of escheat, presumptive death and abandonment do not currently provide adequate solutions for these situations. Each is described in greater depth below.

2 Page 2 of 7 Escheat. ANCSA and Alaska law provide guidance to ANCs for disposition of a deceased shareholder s ANC stock through escheat. 1 However, the current escheat framework is inapplicable to situations arising from missing shareholders or nonresponsive/non-locatable heirs because the first element of the statutory escheat requirements, i.e. death, has not been established. Escheat, as used by ANCs, also has a significant legal defect that needs correction: it is not terminal. Historically, both the legal theory of escheat and the state statutes governing escheat were predicated on escheat being a terminal act. Upon escheat the property fully vested to the state and outside of any specifically enumerated statutory provisions was not subject to reclamation by the owner and/or the owner s heir(s). Such was the case when the escheat provisions of ANCSA and the Alaska probate statutes were drafted. Under Alaska s current intestacy statutes, if there is no heir any personal property in the intestate estate passes to the state and is subject to AS [the Alaska Uniform Unclaimed Property Act (UUAP)]. 2 Thus, property that has escheated to the State through intestacy is subject to the same rules of reclamation as is abandoned property discussed below. If the applicable laws of intestacy allow for reclamation of escheated property, this potentially raises questions as to the terminal nature of estates escheated by an ANC. Presumptive Death. If a shareholder s death is presumed, but there was no death certificate, an ANC could seek a presumptive death certificate for the shareholder and, if successful, proceed to dispose of the estate through the normal estate settlement process. The stock would pass either to the shareholder s heir(s) through a will or intestate succession, or be cancelled by the ANC through escheat. However, even if the presumptive death process is legally appropriate, there are several problems associated with the process. Presumptive death proceedings are problematic in that: they would need to be brought on a case-by case basis, which is expensive and time consuming; they are risky because, as court cases, they are subject to the decisions of a judge and jury; they place the ANC in the middle of family dynamics; and they could create perceived or real conflicts of interest. Abandonment. There is no mechanism under ANCSA for the relinquishment of stock through abandonment. Per ANCSA there are only four scenarios where stock can be transferred: (1) court decree of separation, divorce, or child support; (2) professional necessity; (3) inter vivos gift; (4) death U.S.C. 1606(h)(2)(a); AS AS U.S.C. 1606(h)(1)(c) and (h)(2)(a).

3 Page 3 of 7 Instead, abandonment as a legal construct exists within various state statutes and, in most instances, is based upon the Uniform Unclaimed Property Act (Uniform Act). The Uniform Act is custodial in nature; that is, it does not result in the loss of the owner's property rights. The Uniform Act is not an escheat act because ownership of the property does not vest in the state. Instead, the Uniform Act is a means of providing custodial possession by the state where the owner has not, for a specified number of years, exercised any control or possession of the property; it offers the owner an opportunity to reclaim the property at any time, while giving the state the benefit of the property s use in the interim. Alaska s Uniform Unclaimed Property Act (UUPA) follows the Uniform Act and does not allow for final disposition of abandoned property (i.e., traditional escheat), but rather places it into an indefinite trust, with an additional requirement to fund allowed claims should a claimant appear in the future. Essentially, for abandoned stock and associated dividends, the state assumes custody from the holder after the stock and dividends have been abandoned for five years. The state holds and then sells the stock after three years, depositing the proceeds and dividends in its general fund while retaining in a separate, pooled trust at least $100,000 to cover any future claims. However, disposing of ANC stock under the current Alaska abandonment statute is problematic as the UUPA specifically exempts ANCSA stock and accumulated dividends. 4 Moreover, under the UUPA, custody of abandoned property belongs to the state of the creditor's last known address, as shown by the debtor's books. As such, an ANC could be (and might actually already be) required to report and/or remit missing shareholders /heirs stock and unpaid distributions to the state of their last known address because other jurisdictions do not exempt ANCSA stock and distributions from their abandoned property statutes. The problems outlined above have been graphically depicted in two flowcharts: 4 AS (11)(B)(ii).

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6 Page 6 of 7 III. Proposed Legislative Relief. In October 2016, CIRI sent a note to the ANC Regional General Counsel Group (RGC Group) seeking information and feedback on the issues described above. The responses indicated that this is a universal problem. All responders agreed that, because the missing shareholder/abandonment situation falls outside of ANCSA s and the Alaska Probate Code s current escheat provisions, ANCs were experiencing significant administrative burden in efforts to locate missing shareholders and delays in final estate settlements and distributions to heirs. Some correctly noted that these problems only will increase as the number of shareholders, many of whom own fewer shares, grows. Some corporations have approached the problem by warehousing the case for a lengthy period, for instance, until the person s 100th birthday, and then seeking a presumptive death certificate. But other ANCSA corporations legal and shareholder relations departments have sought a more practical and economically feasible approach. A workgroup was assembled consisting of legal and shareholder relations staff from CIRI, Doyon, and Calista (Workgroup). The Workgroup concluded that the best solution is to amend the Alaska Probate Code, specifically AS , as that statute addresses inheritance of Native corporation stock, but does not currently address these problems, which were obviously not contemplated at the time the law was drafted. On November 4, CIRI briefed the RGC Group on the problem. The Workgroup outlined a conceptual legislative fix. The RGC Group was given an opportunity, until November 11, 2016, to respond with concerns or opposition to the legislative fixes proposed. To date, no corporation has proposed contrary approaches, or opposition, to the proposal. Several voiced support and gratitude for the effort. Attached hereto is a proposed set of amendments to AS , Inheritance of Native Corporation Stock, to address issues as they relate to missing shareholders and nonresponsive/non-locatable heirs. Importantly, the legislation proposed is optional. In other words, the amendments do not set forth a prescribed path for stock estate settlement or stock cancellation for missing shareholders. If ANCs wish to continue with their existing practices, they would be fully free to do so. The proposed amendments would simply provide a set of legal tools to deal with a series of scenarios that were never envisioned when ANCSA and the Alaska Probate Code were drafted. Many ANCs seek a means to deal with the problems created by these scenarios, and the proposed amendments provide that means, without a mandate that they be applied.

7 Page 7 of 7 The proposed amendments generally would accomplish the following: 1. In instances of a missing shareholder, the statute would define abandonment and establish procedural steps an ANC must follow prior to declaring the stock abandoned. Thereafter, the ANC would be allowed to cancel the stock and return the prior accrued distributions to the ANC s general account. In the event an affected shareholder or heir made a later claim to the stock and distributions, replacement stock could be issued and the prior accrued distributions repaid from the general account, without interest. Claimants would not be entitled to distributions declared after the stock was canceled; they would only be entitled to distributions accrued prior to cancelation. Distributions would resume once the replacement stock was issued. 2. In instances of nonresponsive/non-locatable heirs, the amended statute would allow an ANC to make a finding that the potential heir is a declared non-heir. Under the theory of a declared non-heir, the heir would legally cease to have existed for the purposes of disposition of the stock. This would allow the stock to pass to other heirs under the will or intestate succession or, if there were no heirs, to be cancelled by the ANC through escheat. The statute would establish a definition for a declared non-heir and the procedural steps an ANC must follow prior to a finding of a declared non-heir. For declared non-heirs, the statute would set forth an order of priority for distribution of the declared non-heir s portion of the estate. 3. A final amendment to the statute would definitively state that escheat is a terminal act and that stock and associated unpaid distributions that escheat may not be reclaimed.