Alaska Community Property Trusts
Alaska’s Optional Community Property System and Community Property Trusts For Use by Residents and Non-Residents of Alaska.
Alaska Community Property System
The 1998 Alaska legislation enacted a community property system (The Alaska Community Property Act) based on the Uniform Marital Property Act. To participate in this community property system, couples must “elect in,” partially or completely. For example, a couple may elect to have only certain assets characterized as Alaska community property.
Why Would a Client Want to Form an Alaska Community Property Trust?
From an income tax standpoint, community property is presently given a significant tax advantage. At the death of the first spouse, both spouses’ interests in the community property receive a full basis adjustment. As a result, there will be no capital gain payable if the property is sold for its value at the date of the first spouse’s death. Further, the increased basis will allow for increased depreciation deductions for business and investment depreciable property. In a separate property state, if the property was jointly owned between husband and wife, only one-half of the property would receive such an adjustment in basis.
Such a full basis adjustment is often very desirable. After one spouse dies, it may be necessary for the surviving spouse to sell certain assets. The family business may need to be sold due to the deceased spouse’s lack of participation, or pursuant to an existing buy- sell agreement. Real property may be difficult for the surviving spouse to manage. Market conditions may dictate the sale of assets before an expected downturn. Assets may need to be sold to replace the decedent’s earnings. If a full basis adjustment has been obtained, capital gain taxes will be eliminated or greatly reduced.
How Do You Form a Community Property Trust?
Many couples have already accomplished some estate planning. They may have existing revocable trusts or wills. In this situation, a community property trust can be added to this existing estate planning. Appreciated property which is presently held in their existing revocable trust or by the spouses individually would be transferred to a new property trust. At the time of death of the first spouse, when the allowable basis adjustment occurs, then the community property would be divided. One-half would be distributed to the deceased spouse’s revocable trust, and the other one-half would be distributed to the surviving spouse’s revocable trust or outright to the spouse. If a couple have not yet created a revocable trust, then a new joint revocable trust could be formed that would hold their community property as well as the separate property of both the husband and the wife.
Non-Residents Can Utilize Alaska Community Property Trust with Non-Alaska Property
The Alaska Community Property Act allows non- residents of Alaska to form Alaska Community Property Trusts. Such trusts require an Alaska qualified trustee who is domiciled in Alaska or an Alaska trust company or bank. Other co-trustees may be non-residents and may include spouses.
Kodiak Trust Company
Kodiak Trust Company is a licensed trust company in Alaska that is here to serve as trustee. Kodiak Trust Company will act as trustee and still allow the client to use their own investment advisors.
Who Should Consider an Alaska Community Property Trust:
Clients who own a family business that will be sold at the death of the first spouse
Clients with highly appreciated assets
Clients with heavy management responsibility, such as real property
Clients that live in non-community property states
