05/12/1999 02:42 PM Senate JUD

           SB 166-COMMUNITY PROPERTY AGREEMENT/TRUSTS                                                                           
                                                                                                                                
CHAIRMAN TAYLOR informed committee members the Legislature passed                                                               
legislation two years ago that gave spouses the right to elect to                                                               
enter into a community property agreement for their trusts or                                                                   
estates.                                                                                                                        
                                                                                                                                
MR. STEVE NOYE, director of, and lobbyist for, the Alaska Action                                                                
Trust, told committee members a Wisconsin court recently claimed                                                                
the transfer was a gift, as opposed to allowing the double step-up                                                              
in basis, which is a tax free exchange.  SB 166 will prevent a                                                                  
court from claiming that a transfer is a gift as opposed to a non-                                                              
taxable transfer.                                                                                                               
                                                                                                                                
SENATOR DONLEY asked Mr. Noye what transfer he was referring to.                                                                
                                                                                                                                
CHAIRMAN TAYLOR noted the bill refers to a transfer of property                                                                 
upon death.                                                                                                                     
                                                                                                                                
MR. NOYE stated community property states have a double step-up in                                                              
basis, meaning when one spouse dies, the whole estate is revalued                                                               
at current market value in a separate property estate, only the                                                                 
decedent's part of the estate is stepped up to current market value                                                             
and the surviving spouse pays whatever the original basis was.                                                                  
                                                                                                                                
SENATOR DONLEY questioned whether that is determined by federal tax                                                             
law.  MR. NOYE said that is correct.                                                                                            
                                                                                                                                
CHAIRMAN TAYLOR asked if the federal tax law is controlled by the                                                               
state's interpretation of the definition of the property.  MR. NOYE                                                             
said that is correct.                                                                                                           
                                                                                                                                
CHAIRMAN TAYLOR asked if, under Alaska law, the deceased partner's                                                              
portion of the estate is evaluated at the date of death at the                                                                  
stepped up basis and then is conveyed to the spouse; the spouse's                                                               
basis remains the same until she dies, at which time the basis is                                                               
stepped up before it is conveyed, resulting in a higher tax rate                                                                
for the heir.                                                                                                                   
                                                                                                                                
Number 303                                                                                                                      
                                                                                                                                
MARY ELLEN BEARDSLEY, Department of Law, said that is correct,                                                                  
assuming the party held on to the property all of this time.                                                                    
                                                                                                                                
CHAIRMAN TAYLOR noted if the surviving spouse sold the property,                                                                
he/she would not have to pay a lot of capital gains taxes.                                                                      
                                                                                                                                
MS. BEARDSLEY indicated that SB 166 will allow the surviving spouse                                                             
to amend the community property agreement only as it pertains to                                                                
the property she placed into the agreement.                                                                                     
                                                                                                                                
MR. HOMPESCH agreed with Ms. Beardsley and said SB 166 does allow                                                               
the surviving spouse to make changes to her half of the trust or                                                                
the community property agreement.                                                                                               
                                                                                                                                
CHAIRMAN TAYLOR said he thought that if the spouse did not have                                                                 
that ability, he/she would be violative of the holding in the tax                                                               
court.                                                                                                                          
                                                                                                                                
SENATOR DONLEY moved SB 166 from committee with individual                                                                      
recommendations.  There being no objection, the motion carried.