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.