Alaska Community Property Act.

• Author: Moore, Philip E.

Less than a year after the enactment of the Alaska Trust Act, the Alaska legislature again created planning opportunities for residents and nonresidents by passage of the Alaska Community Property Act (AS 34.77), signed into law on May 22, 1998.

Historically. Alaska has not been a community property state; married Alaskans have held assets as separate property. There can be advantages to holding assets as community property and the legislature had at least two benefits in mind when it drafted this new law. First, many married Alaskans come from other states, some of which might be community property states. The new statute offers those Alaskans the option of holding their marital assets within the community property system to which they are accustomed. Second, it is now possible, in Alaska, for a surviving spouse to obtain the income tax benefit of the full step-up in basis under Sec. 1014(b)(6), formerly available only to residents of community property states.

Nonresidents may also create community property under Alaska law by entering into a written "Community Property Trust." Assets that couples wish to classify as community property are transferred to the trust.

The Alaska statute is elective. In most community property states, the form of ownership is mandatory. Alaska still retains the same common-law rule of tenants-by-the-entirety form of holding assets between married persons. But now, spouses can enter into a written agreement designating all (or specific) assets as community property.

The requirements for a binding Community Property Agreement are set out in the statute. Specific language must be included in the agreement to confirm that the parties understand the consequences of the transfer. The community property system is one in which the spouses equally share in the profits and losses generated by community property, regardless of contribution. In the unfortunate event of divorce, community property is likely to be divided equally. Couples in long-term, stable marriages are more likely to be interested in electing community property status for part or all of their assets.

It is expected that community property created under Alaska law will be treated as community property for Federal tax purposes and will provide...