An Alaska Community Property Trust is a joint revocable trust that enables a married couple in a non-community property state to take advantage of federal income tax laws that favor community property. Alaska Community Property Trusts can result in substantial tax savings. This trust is typically used by married couples, including those who are not residents of Alaska, to achieve significant tax and estate planning benefits. The primary benefit of this type of trust is to achieve a “step-up” in basis for highly appreciated jointly owned assets at the death of the first spouse.

Benefits of Alaska Community Property Trusts

• Full Basis Adjustment: Upon the death of the first spouse, assets held in an Alaska Community Property Trust may receive a full basis adjustment under federal tax law (IRC Section 1014). This adjustment can result in a step-up in the basis of the assets to their current fair market value. As a result, if these assets are sold after the first spouse’s death, there may be little to no capital gains tax owed. This can lead to substantial tax savings for the surviving spouse and heirs.
• Non-Resident Accessibility: One unique feature of Alaska’s community property laws is that non-residents can establish Alaska Community Property Trusts. This means that couples living in other states can benefit from Alaska’s community property system and tax advantages by working with an Alaska trustee.
• Choice of Trustee: An Alaska Community Property Trust must have at least one Alaska qualified trustee, who must be an individual domiciled in Alaska or an Alaska trust company or bank. This qualified trustee’s powers must include maintaining records for the trust on an exclusive or non-exclusive basis and preparing and arranging for the preparation of any income tax returns that must be filed by the trust. As long as there is at least one Alaska qualified trustee, the grantors may serve as co-trustees.

Ideal Candidates for Alaska Community Property Trusts
Characteristics of couples who are likely to benefit from an Alaska Community Property Trust include:

• Couples in long-term stable marriages
• One or both spouses own a significant amount of appreciated property
• One or both spouses own a significant amount of real property with little or no remaining depreciable life
• The couple is older and at least one spouse may have a reduced life expectancy

Couples Less Likely to Benefit from an Alaska Community Property Trust
An Alaska Community Property Trust may not be an advantageous strategy for all couples. Characteristics of couples less likely to benefit from this type of trust include:

• Couples recently married, especially couples planning to keep property separate during marriage
• Couples in a second (or subsequent) marriage with prior-marriage children where property is kept separate

Want to learn even more about the Alaska community property system? Read our article: Alaska Community Property: Gateway to a Powerful Estate Planning Tool

It is important to consult with legal and financial advisors who are knowledgeable about Alaska’s community property laws and tax implications when setting up an Alaska Community Property Trust. Additionally, estate planning is a highly individualized process, and the trust structure should align with the couple’s unique financial circumstances and objectives. Laws and tax regulations may also change over time, so staying informed about updates is essential for effective estate planning.

Have questions or would like more information? Our team is here to help.

Note: The information provided here is for general educational and informational purposes only. It is not legal advice and should not be interpreted as such. For a thorough understanding of these topics relevant to your specific circumstances, we recommend consulting a qualified estate planning attorney. Peak Trust Company cannot provide legal advice; however, we can serve as an informational resource and provide referrals to highly skilled attorneys who can offer legal and tax guidance tailored to your specific needs.