03/25/1998 02:25 PM Senate JUD

                                                                               
                  HB 199 - COMMUNITY PROPERTY                                  
                                                                               
REPRESENTATIVE JOE RYAN, prime sponsor of HB 199, testified that               
the bill allows, by election, community property for married                   
couples for some or all of their assets. This allows them to take              
advantage of a step up in basis when one of the partners dies,                 
without capital gains liability. REPRESENTATIVE RYAN said this bill            
will allow Alaskan citizen to keep some of the money they earn                 
during their lifetime rather than paying it out in taxes. He                   
stressed this is purely an elective option and they included a                 
strong caution to ensure that the female spouse obtain legal                   
counsel so she fully understands what the agreement means and does             
not get taken advantage of. CHAIRMAN TAYLOR interjected that he                
hoped REPRESENTATIVE RYAN included this caution in gender neutral              
language.                                                                      
                                                                               
REPRESENTATIVE RYAN said the second benefit of this bill is related            
to the newly established Alaska Trust Act which would allow people             
to deposit assets into the Alaska Trust and declare them community             
property, giving them the benefit of the step up in basis.                     
REPRESENTATIVE RYAN said the bill has many upsides and he has not              
found any downside. He encouraged the committee to forward the                 
bill.                                                                          
                                                                               
MR. DICK THWAITES, an attorney specializing in estate and gift                 
taxes, explained that most states are "separate property" states,              
as opposed to "community property" states. In 1981, with the                   
enactment of the unlimited marital deduction for federal estate tax            
purposes, it became very advantageous for the surviving spouse, in             
the event of one spouse's death, to hold community property. MR.               
THWAITES said Alaska can reap the benefits of both separate and                
community property status by following the example of Oklahoma and             
adopting an optional community property device.                                
                                                                               
MR. THWAITES gave an example to demonstrate the benefits of the                
bill, and reported that the bill will allow an elective step up in             
basis on a property by property basis. He said it creates no new               
concern for judges, as they already deal with community property               
issues brought to Alaska by couples with community property from               
other states. MR. THWAITES concluded that the bill would provide               
many benefits, and as an elective provision, would not take away               
any of the advantages of separate property.                                    
                                                                               
SENATOR PARNELL asked if the election to choose community property             
could be made at any time and MR. THWAITES replied it could.                   
                                                                               
SENATOR PARNELL asked if there are any other states who have                   
adopted it. MR. THWAITES replied that every state was going to                 
community property in 1938 until Congress repealed it. He said                 
there are circumstances where couple would want to retain separate             
property. Recently, Wisconsin adopted a provision whereby all                  
property is community property unless people opt out. The bill                 
before the committee was modeled after this but with a change                  
allowing people to opt in.                                                     
                                                                               
SENATOR PARNELL asked MR. THWAITES if he envisioned any                        
Constitutional problems. MR. THWAITES did not.                                 
                                                                               
CHAIRMAN TAYLOR remarked that this seems to provide an tremendous              
tool for trusts and people advising others in estate planning.                 
CHAIRMAN TAYLOR asked if there were any down sides of the bill in              
regards to divorce. MR. THWAITES said the bill requires a 50/50                
split in divorce, unless there was a prenuptial agreement or the               
court chooses to reallocate the assets. CHAIRMAN TAYLOR confirmed              
that the court could still make a fair and equitable settlement and            
community property would be by election of both parties only. MR.              
THWAITES told CHAIRMAN TAYLOR that was correct, and the election               
could be undone by the consent of both parties. SENATOR PARNELL                
asked why this was so and MR. THWAITES explained that both parties             
have property rights as a result of this status and one party                  
cannot force the liquidation of the other parties interest,                    
therefore, the dissolution must be consensual.                                 
                                                                               
Number 418                                                                     
                                                                               
MR. DOUGLAS BLATTMACHR, President of the Alaska Trust Company,                 
voiced his strong support for the bill which he said will help                 
married couples and bring business to Alaska, without any detriment            
to the State.                                                                  
                                                                               
MR. DAVE SHAFTEL, an Anchorage attorney specializing in estate                 
planning, also supported the bill, testifying to the fact that it              
will provide Alaskans with a significant tax benefit already                   
available to residents of community property states. He said the               
fact that the bill is elective makes it more attractive, and agreed            
with REPRESENTATIVE RYAN that there is no downside to the bill.                
                                                                               
CHAIRMAN TAYLOR asked if there were other people wishing to testify            
on the bill. Hearing none, the chair entertained a motion by                   
SENATOR PARNELL to move the bill from committee with individual                
recommendations. Without objection, it was so ordered.