1. The Alaska Community Property Law The Other Alaska Trust Law WealthCounsel Advisors Forum Presented by Richard H. Foley, Jr. and Susan B. Foley ©Copyright Richard Foley and Susan Foley, all rights reserved.

2. Objectives Distinguish Alaska Community Property Law from the Alaska Asset Protection Trust Law Explain Community Property Law basics Identify benefits of Community Property Explain basic capital gain tax concepts Identify appropriate applications

3. What is Community Property? State specific law Similar to a partnership Each spouse has a one-half undivided interest in the property Property is held as a “whole” Distinguished from “marital property” Property acquired by spouses during marriage is community property regardless of how it is titled

4. What is Community Property? Creditors of one spouse may be able to reach the “whole” of the community property. In separate property states, creditors of a spouse may only reach the separate property of the debtor spouse.

5. Community Property States Alaska Arizona California Idaho Louisiana Nevada New Mexico Texas Washington Wisconsin

6. Capital Gain Treatment of Property Rental Property purchased for $100K is now has value of $1.1M $1M gain X.15 percent = $150K tax John’s Rental If John dies and gives the property to Mary, she receives a “step up” in basis to the FMV of the property $1.1M No tax on the sale after John’s death John’s Death

7. Capital Gain Treatment of Separate Property John’s Basis $50,000 Mary’s Basis $50,000 “Step up” of basis for Mary on ½ of the property to $550K. Added to Mary’s basis on the other half results in a new basis for Mary of $600K. Upon sale at $1.1 M, capital gains tax is $75K. John’s Death

8. Capital Gain Treatment of Community Property John’s Basis $50,000 Mary’s Basis $50,000 FULL “step up” of basis for Mary to fair market value of $1.1 M. Upon sale at $1.1 M, no capital gains tax. John’s Death

9. Conclusion Appreciated real estate, marketable stocks or family business held as community property avoids capital gains tax upon sale after the death of the first spouse.

10. Alaska Community Property Law Passed in 1998. Alaska couples who are married may “opt in” by agreement. Non-Alaska residents “opt in” by trust. Community Property trust requires qualified Alaska Trustee. Couples may “pick and choose” assets to be treated as community property.

11. Applications Long-term, stable marriage Appreciated property Older couples Terminally-ill spouse Non-Alaska residents who desire to establish an Alaska Community Property Trust

12. Couples Less Likely to Elect Community Property Recent marriage where property is kept separate Unstable marriage Limited appreciated property Second marriage with prior children where property is kept separate

13. Spotting the Issue Value added planning Substantial tax saving Part of a more comprehensive plan