Article: 6
  Volume 18, March 6, 2000.
David G. Shaftel, 2000 © All Rights Reserved.

In 1998, Alaska became the 10th community property state. In contrast to the other states, Alaska adopted an optional community property system. The default property system remains separate property. However, a couple may opt-in to a community property system. The act provides that non-residents of Alaska may use Alaska's community property system by adopting an Alaska community property trust. The goal of the Act is to make available to both residents and non-residents of Alaska the community property benefits of sharing and equality, and a full stepped-up basis at the death of the first spouse.

The recent amendments clarify ambiguities relating to amendment and revocation of community property agreements and trusts. The following background is necessary to understand these amendments. The Alaska Community Property Act is based upon the Uniform Marital Property Act. One new feature added by UMPA is the ability of a couple to make a non-testamentary disposition under a community property agreement. Alaska enacted the same provision which is applicable both to community property agreements and community property trusts. Further, the Alaska Act provides that such instruments may not be amended or revoked unless the agreement or trust itself provides for revocation "on a particular date or on the occurrence of a particular event ..."

The above-described provisions may create an argument that at the first spouse's death the surviving spouse makes a completed taxable gift of the surviving spouse's property which is to be disposed of at the surviving spouse's death. The following history explains this issue. The Uniform Marital Property Act was previously enacted by Wisconsin. Subsequently, the decision in Pyle v. United States, 766 F.2d ll41 (7th Cir. 1985) was decided. This case involved an Illinois joint will. The court held that after the death of the first spouse, the surviving spouse could not change the will. Therefore, at that time, the surviving spouse made a taxable gift to the residuary beneficiaries who would inherit after the surviving spouse's death. As a result, transfer tax was payable at the death of the first spouse, which otherwise would have been deferred until the death of the surviving spouse.

Wisconsin practitioners became concerned, and the Wisconsin legislature amended its community property statute to create a default rule that a surviving spouse may unilaterally amend a community property agreement with respect to property to be disposed of at the death of the surviving spouse. Such a provision would prevent application of the decision of Pyle v. United States, because the amendment would prevent the gift from being completed until the death of the surviving spouse.

The proposed amendments to Alaska Statutes 34.77.090 and .100 are similar to the amendments enacted by the Wisconsin Legislature. They state that if a community property agreement or trust provides for the non-testamentary disposition of property, without probate, at the death of the second spouse, then at any time after the death of the first spouse the surviving spouse may amend the community property agreement or trust with respect to the surviving spouse's property to be disposed of at his or her death.

In addition, and equally important, the amendment eliminates the language that a community property agreement or trust may only be amended "on a particular date or on the occurrence of a particular event" provided in the instrument. Rather, a community property agreement or trust may be amended or revoked at any time if the instrument generally authorizes amendment or revocation by the spouses. Most community property trusts will authorize such amendment by the spouses, and will further authorize that either spouse may withdraw community property from the trust. The agreement or trust will direct that such withdrawn property retains its community property character. The ability of a spouse to withdraw property from a community property trust may be essential for the retention of the community property character of such property while it is in the trust.

The amendments will apply to all community property agreements and trusts executed after the effective date of the Alaska Community Property Act. Alaska Senate Bill 166 was passed on February 23, 2000 and was sent to the Governor. It is effective as of the date of passage.