Alaska Community Property Trusts

There is a planning strategy that could reduce income taxes for married couples.  The Alaska Community Property Trust permits married couples to transfer assets to a spouse at death, totally eliminating capital gains on all appreciated assets owned by the couple.

Married couples who live in the ten Community Property states (Alaska, Arizona, California, Idaho, Louisiana, New Mexico, Nevada, Texas, Washington and Wisconsin) and hold their assets as community property receive a full "ste-up" in basis at the death of the first spouse for purposes of determining capital gains tax when the property is later sold.  Consequently, residents of community property states benefit from a significant capital gains tax savings by holding appreciated property as community property, an advantage unavailable to the rest of the nation, where only the assets of the deceased spouse would receive a step-up in basis (typically considered 1/2 of joint property).

Alaska, however, specifically allows non-Alaska residents who meet certain criteria to "borrow" the features of Alaska Community Property law and eliminate capital gains on their appreciated assets at the death of the first spouse.  It is now possible for you to transfer your appreciated property to a special trust drafted to take advantage of Alaska Community Property Trust features. 

Upon the first spousal death, the survivor of beneficiaries can then sell the property paying tax only on the gains above the date of death value.  If you read this, and are interested, please contact me.

Note: The rules for basis step up in 2010 are particular to 2010, this post does not address the 2010 issues.


Patrick