LEGISLATIVE UPDATES OF INTEREST TO FIDUCIARIES · o UVTA changes the word “fraudulent” to ... o Exception for UCC Article 9 ... august_2015/2015_aba_rpte_pp_v29_3_article_fosier_boughman

LEGISLATIVE UPDATES OF

INTEREST TO FIDUCIARIES

91st General Assembly of Arkansas

2017 Regular Session

October 25, 2017

Presented by:

Dan C. Young

Rose Law Firm,

a Professional Association 120 East Fourth Street Little Rock, AR 72201

(501) 377-0321 [email protected]

TOPICS OF CONVERSATION

I. Uniform Voidable Transactions Act

II. Uniform Revised Fiduciary Access to Digital Assets Act

III. Small Estate Distributions

IV. Mandatory Arkansas S-Corporation Election

V. Dynasty Trusts

LEGISLATIVE UPDATES OF INTEREST TO FIDUCIARIES

I. Uniform Voidable Transactions Act Ark. Code Ann. § 4-59-201 et seq.

Section Attachments:

1. Article- Uniform Voidable Transactions Act as Adopted in Arkansas

2. Text of Act- Act 1086 of 2017

***

Basics o Uniform Voidable Transactions Act (“UVTA”), proposed by the Uniform Law

Commission, was adopted by the Arkansas General Assembly in 2017 and is the

successor to the Uniform Fraudulent Transfer Act (“UFTA”)

o UFTA was adopted by the majority of states

o UVTA is intended to resolve uncertainty among state variations of the UFTA and

bring the UFTA up-to-date with the amended and supplemented Uniform

Commercial Code and the amended and supplemented Bankruptcy Code.

o UVTA changes the word “fraudulent” to “voidable” and makes other “technical”

updates.

What is a Voidable Transfer or Voidable Conveyance?

o Under the UVTA, a transfer is voidable if it is an attempt to avoid a legitimate

debt by transferring money o another person or company.

o Under the UFTA, this was called a “fraudulent” transfer.

o Whether a transfer is voidable is judged on the basis of an insolvency test

combined with receipt of equivalent value in return for the transfer

o A voidable (and “fraudulent”) transfer should be distinguished from criminal

fraud or common law civil fraud, which was part of the reason behind the

terminology update.


Major Changes UVTA Makes to UFTA

o Definitions have been updated for globalization and e-commerce

The term “writing” from the UFTA has been replaced with the term

“record” in the UVTA

The term “fraudulent” from the UFTA has been replaced with the term

“voidable” in the UVTA

Under the UVTA, a “record” includes electronic media.

Under the UVTA, the term “person” has now been split into two terms—

(1) “individuals”; and (2) “organizations”—although no operational

difference exists because of this modification

o Elimination of separate insolvency definition for partnerships Previously, partnerships were insolvent if the sum of all partnership debts

was greater than the aggregate of partnership assets and general partner

net worth. Now, partnerships are treated as a regular debtor, meaning a

debtor’s debts are greater than the value of the assets of the debtor OR that

the debtor is unable to pay the debtor’s debts as they come due.

o Exception for UCC Article 9 security interests

The UVTA exempts transfers from avoidance if the transfer is made under

the enforcement of a security interest in compliance with Article 9 of the

Uniform Commercial Code. This is an effort to protect creditors’

legitimate rights and interest in debtor property.

o Codified choice of law provision

Choice of law provisions and conflicts analysis were substantially varied

nationally under the UFTA. Under the UVTA, a debtor’s location for

purposes of a transfer is determined by his residence (if individual), its

place of business (if an organization), or its headquarters (if an

organization with multiple places of business).

o Clarify on burdens of proof Under the UFTA, different state adoptions had resulted in varying

methods of application of the UFTA. Under the UVTA, there are clearly

defined burdens of proof for determining whether a transfer in question is

in conflict with conveyance law of the particular state.

As to “insolvency,” a claimed insolvent debtor must prove by a

preponderance of the evidence he, she or it is solvent.


As to transfers adverse to creditor rights, a creditor holds the burden of

proof to show, by a preponderance of the evidence, that a transfer was in

violation of conveyance law.

All defenses presented by a debtor must be proven by a preponderance of

the evidence.

o Series Organizations

Series organizations are relatively new types of entities which allow small

protected cells within an existing entity structure (similar to a

honeycomb).

Example—a limited liability company (the “series organization”)

that contains four more limited liability companies (a “series”

within the “series organization”) that are not legally distinct

entities, but are legally separated.

UVTA contemplates series organizations and how to treat them if adopted

by a state with legislation allowing series organizations

Criticisms of the UVTA o Many scholars and practitioners believe the UVTA goes far beyond its intended

scope and creates a litany of issues for practitioners.

o The same critics believe the passage and adoption by a state of the UVTA actually

increases uncertainty

o This criticism is centered around the Official Comments to the UVTA.

o Act 1086 attempts to disallow any uncertainty due to the comments by purporting

to not adopt Official Comments 2 and 8:

Uniform Voidable Transactions Act

As Adopted in Arkansas

By: Michael K. Goswami

Rose Law Firm, A Professional Association

120 E. Fourth Street

Little Rock, Arkansas 72201

Background

The Uniform Voidable Transactions Act ("UVTA") is the successor to the Uniform Fraudulent

Transfer Act ("UFTA"). In Arkansas, the UFTA was found at Ark. Code Ann. § 4-59-201 et seq. So far,

the UVTA has only been adopted in twelve states, with ten other states under pending legislation.' TheUVTA was part of the Arkansas Bar Association's 2017 Bar Package as passed in April of 2017.- makingthe chapter at Ark. Code Ann. § 4-59-201 ef seq. the Arkansas Voidable Transfers Act as of ninety daysafter the sine die adjournment of the session.^

The UVTA's replacement of the UFTA is intended to resolve some uncertainty among variationsof the UFTA and bring the uniform rules into compliance with the UCC and the Bankruptcy Code. It isfurther intended to reduce confusion caused by the words "fraud" and "fraudulent" which appear

throughout the UFTA. Dissemination into the legal community has shown proponents to claim theUVTA is just a renamed and lightly amended UFTA, while critics claim that the UVTA creates a litany ofissues for practitioners and potentially increases uncertainty.

Notable Amendments in the UVTA

Definitional Changes

A change which is immediately apparent is the omission of the word "fraudulent" from the title ofthe act. It has been replaced with the word "voidable." This is intended to discourage the "oxymoronicusage" of the concepts of "constructive fraud" and "actual fraud."'* Such confusion caused inconsistentapplication of the UFTA throughout the nation. However, the change in terminology is not intended tochange the meaning of the act.^

Certain defined terms have been updated for globalization and e-commerce. For example, theterm "writing" from the UFTA was replaced with the term "record" in the UVTA. A "record" includes

' httD://www.uniformlaws.org/Act.asr)x?tit]c=Voidable%2QTransaclions%2QAct%20Ajnendmcnts'7g20(2QI4>%20-

%2QFormcrlv'^c201"raudulent'vc2QTran5fer%20Act.

^5ee2017 Ark. Acts 1086.

' See Knowles v. Vick Chemical Co., 240 Ark. 125.398 S.W.2d 204 (1966) (stating that, absent an emergencyclause, bills passed during the session do not become effective until ninety days after the close of session).* http://www.anKTicanbar.ora/publicalions/nrobaic oroneriv maaazine 2012/2015/iulvaugust_2015/2015_aba_rpte_pp_v29_3_article_fosier_boughman_uniform_voidable_transactions_act.html.' See UVTA Prefatory Note (Style).


II. Uniform Revised Fiduciary Access to Digital Assets Act Ark. Code Ann. § 28-75-101 et seq.


1. Article- The New Uniform Digital Assets Law: Estate Planning and Administration in

the Information Age


***

Basics o Drafted by Uniform Law Commission to ease and facilitate transfer of digital

assets after a decedent’s death

o Adopted by thirty-four states, including by the Arkansas General Assembly in

2017

o Average American household values its digital assets at $55,000. See McAfee

Reveals Average Internet User Has More than $37,000 in Underprotected Digital

Assets, MCAFEE (Sept. 27, 2011),

http://www.mcafee.com/us/about/news/2011/q3/20110927-01.aspx.

o Prior to the adoption of this regime, there was a constant battle between

administrators and holders of digital assets regarding whether estate planning

documents governed over the terms of service related to the digital asset.

What is a Digital Asset?

o A “digital asset” is an “electronic record in which an individual has a right or

interest”, but does not include the “underlying asset or liability unless the asset or

liability is itself an electronic record.” See Ark. Code Ann. § 28-75-102(9).

o A “record” is “information that is inscribed on a tangible medium or that is stored

in an electronic or other medium and is retrievable in perceivable form.” See Ark.

Code Ann. § 28-75-102(21).

o “Electronic” means “relating to technology having electrical, digital, magnetic,

wireless, optical, electromagnetic, or similar capabilities.” See Ark. Code Ann. §

28-75-102(10).

http://www.mcafee.com/us/about/news/2011/q3/20110927-01.aspx


o Intended to capture any electronically stored information, whether on the internet,

a private network, a personal computer, or a phone.

o Bitcoin, access to social media accounts, frequent flyer miles and hotel points, etc.

How the Act is Intended to Operate o Act applies to fiduciaries acting under a will or power of attorney, personal

representatives of a decedent, conservatorships, and trustees of trusts.

o Provides access to qualified fiduciaries upon a three-way test related to a

decedent’s intent with respect to any digital asset: First, if the user expressly directed the administrator of the asset to

disclose the content of the digital asset, then it should be disclosed to the

fiduciary; Second, if the decedent directed in testamentary or estate planning

documents a desire to disclose such information to a fiduciary, then it

should be disclosed to the fiduciary; Third, if a decedent provided no direction as to whether such digital assets

should be disclosed or transferred to a fiduciary, the terms of service

regarding the underlying digital asset will govern.

o Once a fiduciary obtains access to a digital asset, the terms of service regarding

the digital asset apply to the fiduciary as if the fiduciary stepped into the shoes of

the decedent.

o In disclosing and providing access to digital assets, administrators have some

discretion in determining how much access to provide.

o Custodians have a 60-day time limit with which to comply with a proper request

for disclosure or access.

o Under the Act, a fiduciary is charged with the management of any digital asset

that comes into its control, and the Act specifically lists out certain duties required

of the fiduciary

Stricken langnage would be deleted from and underlined language would be added to present law.Act 886 of the Regular Session

1 State of Arkansas As Engrossed: H3/15/17

2 91 St Goieral Assembly A Bill3 Regular Session, 2017 HOUSE BILL 2253

4

5 By: Representative Gazaway

6

7 For An Act To Be Entitled

8 AN ACT TO ADOPT THE REVISED UNIFORM FIDUCIARY ACCESS

9 TO DIGITAL ASSETS ACT; AND FOR OTHER PURPOSES.

10

11

12 Subtitle

13 REVISED UNIFORM FIDUCIARY ACCESS TO

14 DIGITAL ASSETS ACT.

15

16

17 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF ARKANSAS:

18

19 SECTION 1. Arkansas Code Title 28 is amended to add a new chapter to

20 read as follows:

21 CHAPTER 28

22 REVISED UNIFORM FIDUCIARY ACCESS TO DIGITAL ASSETS ACT

23

24 28-75-101. Short title.

25 This chapter may be cited as the "Revised Uniform Fiduciary Access to

26 Dieital Assets Act".

27

28 28-75-102. Definitions.

29 As used in this chapter:

30 (1) "Account" means an arrangement under a terms-of-service

31 agreement in which a custodian carries, maintains, processes, receives, or

32 stores a dieital asset of the user or provides goods or services to the user.

33 (2) "Agent" means an attomev-in-fact granted authority under a

34 durable or nondurable power of attorney.

35 (3) "Carries" means engages in the transmission of an electronic

36 communication.

03-4)3-2017 13:14:41 JNL015


III. Small Estate Collection and Distributions Ark. Code Ann. § 28-41-101 et seq.




***

Basics o Small estate procedure outlined at Ark. Code Ann. § 28-41-101 allows a distribute

of an estate to collect and distribute the assets of an estate without the

appointment of a personal representative if:

(1) no petition to appoint a personal representative has been made or

granted;

(2) 45 days have elapsed since the death of the decedent; and

(3) the value of the estate, less encumbrances, homestead and statutory

allowances, is less than $100,000.

o The proper distributes must file an affidavit with the circuit clerk of the proper

county stating: There are no unpaid claims or demands against the estate, including such

claims by the Department of Human Services, the State of Arkansas, or

the Federal Government; An itemized description of property of the decedent; Names and addresses of persons having possession of decedent’s property;

and Names and addresses of persons entitled to receive property.

o If a claim is presented against the estate, then the distributee(s) are forced to file a

petition for administration of the estate, unless the distributees can satisfy the

claims of the claimant from property not owned by the decedent at the time of

death.

stricken language would be deleted from and underlined language would be added to present law.Act 649 of the Regular Session

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State of Arkansas

91st General Assembly

Regular Session, 2017

By: Senator Maloch

By: Representative Tucker

As Engrossed: S3/2/17

A BillSENATE BILL 491

For An Act To Be Entitled

AN ACT TO CLARIFY THE LAW CONCERNING THE COLLECTION

OF A SMALL ESTATE BY A DISTRIBUTEE; TO CLARIFY THE

VALUE OF PROPERTY FOR THE PURPOSE OF COLLECTING A

SMALL ESTATE; AND FOR OTHER PURPOSES.

Subtitle

TO CLARIFY THE LAW CONCERNING THE

COLLECTION OF A SMALL ESTATE BY A

DISTRIBUTEE; AND TO CLARIFY THE VALUE OF

PROPERTY FOR THE PURPOSE OF COLLECTING A

SMALL ESTATE.

BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF ARKANSAS:

SECTION 1. Arkansas Code § 28-41-101(a), concerning the collection of a

small estate by a distributee. Is amended to read as follows:

(a) The distributee of an estate shall be entitled thereto mav collect

and distribute the assets of an estate under this section without the

appointment of a personal representative when:

(1) No petition for the appointment of a personal representative

Is pending or has been granted;

(2) Forty-five (45) days have elapsed since the death of the

decedent;

(3)(A) The value, less encumbrances, of all property owned by

the decedent at the time of death, excluding the homootoad of and the

statutory allowances for the benefit of a spouse or minor children, If any,

02-27-201714:58:11 JNL002


IV. Mandatory Arkansas S-Corporation Filing Ark. Code Ann. § 26-51-401 et seq.



***

Basics o An election under Subchapter S of the Internal Revenue Code (26 U.S.C. § 1361

et seq.) for federal income tax purposes to be treated as an S-Corporation will

require that the entity also files an S-Corporation return for Arkansas state income

tax purposes.

o An entity which is taxed as an S-Corporation under federal law may no longer be

taxed as a C-Corporation under Arkansas law.

o Effective for tax years beginning on or after January 1, 2018.

stricken language would be deleted from and underlined language would be added to present law.Act 434 of the Regular Session

1 State of Arkansas

2 91 St General Assembly A Bill3 Regular Session, 2017 HOUSE BILL 1563

4

5 By: Representative Jett

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7 For An Act To Be Entitled

8 AN ACT CONCERNING A CORFORATION'S ABILITY TO ELECT

9 SUBCHAPTER S TREATMENT FOR ARKANSAS INCOME TAX

10 PURPOSES; TO REQUIRE A CORPORATION FILING A FEDERAL

11 SUBCHAPTER S INCOME TAX RETURN TO FILE AN ARKANSAS

12 SUBCHAPTER S INCOME TAX RETURN; AND FOR OTHER

13 PURPOSES.

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16 Subtitle

17 TO REQUIRE A CORPORATION FILING A FEDERAL

18 SUBCHAPTER S INCOME TAX RETURN TO FILE AN

19 ARKANSAS SUBCHAPTER S INCOME TAX RETURN.

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24 SECTION 1. Arkansas Code § 26-51-409(b), concerning the administration

25 of federal Subchapter S corporations, Is amended to read as follows:

26 (bl(1)(A) The corporate oloctlon ond oharcholdor conoonto required to

27 be filed under Subchapter S of the Internal Revcnuo Code, 26 UiSiC. S 1361 et

28 seq., for Arkanoao income tax purposoo ohall be filed with the Director of

29 the Department of Finance and Adminiotration in the oamo manner and at the

30 oamo time ao required under Subchapter S of the Internal Revenue Code, 26

31 U.S,C. § 1361 ot ooq,, on formo to be pr-oeo^l-bed by the-direotor. A

32 corporation shall be treated as a Subchapter S corporation for Arkansas

33 income tax purposes if the corporation has elected Subchapter S treatment for

34 federal income tax purposes for the same tax year.

35 (B) An election made under Subchapter S of the Internal

36 Revenue Code. 26 U.S.C. S 1361 et sea., for federal income tax purposes is

02-14-2017 09:40:13 JLL194


V. Dynasty Trust Act Ark. Code Ann. § 18-3-101 et seq.


1. Article- Dynasty Trust Case Study


***

Basics o Eliminates the amorphous Rule Against Perpetuities, which, to the dismay of

lawyers, law students, and fiduciaries everywhere, previously caused a purported

transfer of property to fail if it did not vest within a certain period of time.

o Allows assets to remain in trust in perpetuity.

o Allows the use of cascading powers of appointment if a trustee has power to

dispose of trust assets in a qualified manner (including the termination of the

trust).

IStricken language would be deleted from and underlined language would baadded to present law.

Act 945 of the Regular Session '

1 State of Arkansas As Engrossed: 33/16/17

2 91st General Assembly A Bill3 Regular Session, 2017 SENATE BILL 533

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5 By: Senator J. Hutchioson

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7 For An Act To Be Entitleil

8 AN ACT TO CREATE THE DYNASTY TRUST ACT; AND FOR OTHER

9 PURPOSES.

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12 Subtitle

13 TO CREATE THE DYNASTY TRUST ACT.

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18 SECTION 1. DO NOT CODIFY. Title.

19 This act shall be known and may be cited as the "Dynasty Trust Act".

20

21 SECTION 2. DO NOT CODIFY. Legislative intent.

22 It is the intent of the General Assembly to:

23 (1) Join the maloritv of states that allow the creation of

24 perpetual trusts also mmmmly known as dynasty trusts:

25 (2) Benefit successive generations of beneficiaries by

26 protecting trust assets from federal taxes and the creditors of a

27 beneficiary:

28 f3) Amend the current rule against perpetuities so that

29 perpetual trusts mav be created in the State of Arkansas, increasing trust

30 business within the state, instead of having a trust grantor create a trust

31 in a foreign state for the sole purpose of ensuring the life of the trust

32 beyond the short period of time granted by Arkansas's rule against

33 perpetuities: and

34 Amend the current rule against perpetuities to allow the

35 transfer of trust assets held in trust back to the State of Arksmsas without

36 creating a taxable event.

02-28-201715:33:40 DTP196

Documents

LEGISLATIVE UPDATES OF INTEREST TO FIDUCIARIES · o UVTA changes the word “fraudulent” to ... o Exception for UCC Article 9 ... august_2015/2015_aba_rpte_pp_v29_3_article_fosier_boughman