Legislature(1999 - 2000)
05/12/1999 02:42 PM Senate JUD
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
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.
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