Alaska Community Property Trust: How to Get a Double Step-Up in Basis Even If You Don't Live in Alaska

Most Americans live in common-law property states, where married couples own assets individually or jointly — but not as community property. That distinction, which sounds abstract, has a concrete and expensive consequence at death.

When one spouse dies in a common-law state, only the deceased spouse's share of jointly owned property receives a step-up in cost basis under federal tax law. The surviving spouse keeps their original half at the old basis. When they eventually sell the asset, they owe capital gains tax on all the appreciation that accumulated on their half during the marriage.

Alaska offers a legal structure that eliminates this problem — and it is available to couples who have never set foot in Alaska.

The Two Categories of Spousal Property Ownership

Understanding why this matters requires a brief look at how property law divides married couples' assets.

In the 41 common-law states, each spouse owns what they earn and what they acquire in their own name. When couples own property together, they typically hold it as joint tenants with right of survivorship or as tenants in common. At the first death, the deceased spouse's half gets a step-up in basis to date-of-death value. The surviving spouse's half keeps its original cost basis — often the purchase price paid decades earlier.

In the nine community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, Wisconsin), assets acquired during the marriage are generally owned 50/50 as community property. Under IRC Section 1014(b)(6), both halves of community property receive a step-up in basis at the first death. This is the double step-up, and it can eliminate capital gains tax on the entire asset.

Alaska is neither a mandatory community property state nor one of the nine. It is an opt-in state under the Alaska Community Property Act (AS 34.77). Couples can elect community property treatment for specific assets, and those assets then receive the double step-up at the first death.

What the Double Step-Up Saves in Practice

Take a concrete example. A couple bought a house in 2001 for $400,000. Today it is worth $1.6 million. Their combined original basis is $400,000.

Under common-law joint ownership, the deceased spouse's $200,000 half steps up to $800,000. The surviving spouse retains their $200,000 half at the original basis. Total basis: $1 million. If the surviving spouse sells for $1.6 million, the taxable gain is $600,000. At a 15% long-term capital gains rate, the federal tax bill is $90,000.

Under Alaska community property treatment, both halves step up. The entire $1.6 million asset has a $1.6 million basis. The gain is zero. The capital gains tax is zero.

On larger assets — commercial real estate, investment portfolios, closely held businesses, Alaska fishing permits — the savings compound dramatically. On a $10 million property with a $2 million basis, the double step-up eliminates approximately $1.2 million in federal capital gains tax that would otherwise be owed.

The Mechanisms: Community Property Agreement vs. Community Property Trust

Alaska offers two ways to elect community property treatment.

Community Property Agreement: A written contract between spouses declaring that specified assets (or all marital assets) will be treated as community property under AS 34.77. This is simpler but lacks the structural protections of a trust.

Alaska Community Property Trust: A trust structure that holds the designated community property assets. The trust must satisfy the requirements of AS 34.77, including the IRS's Westerdahl standard, which requires that the trust's terms assure testamentary disposition of the assets and limit one spouse's unilateral management power to protect the other spouse.

For IRS purposes, assets held in a properly structured Alaska Community Property Trust qualify for IRC Section 1014(b)(6) treatment. This is the vehicle most often used by non-resident couples because the trust structure provides a clear paper trail proving the assets' community property character.

Non-Resident Use: How Couples from Other States Access This

This is where the Alaska structure is genuinely unusual. Under AS 34.77.100, an Alaska Community Property Trust can be established and maintained by couples who do not live in Alaska, provided the trust satisfies specific nexus requirements:

• At least one trustee must be a "qualified trustee" — an individual domiciled in Alaska, or an Alaska-chartered bank or trust company
• The qualified trustee must maintain exclusive records for the trust that identify it as community property
• The qualified trustee must handle the preparation of the trust's income tax returns, or engage an agent to do so

The Alaska trustee requirement is the functional anchor. Several Alaska-chartered trust companies and individual Alaska-domiciled trustees serve this role for non-resident clients. The couple funds the trust with the assets they want to shelter, the Alaska trustee maintains the required records, and the double step-up applies at the first death regardless of where the couple actually lives.

This arrangement has been used by couples in California, New York, Texas, and Florida who hold highly appreciated real estate or investment portfolios and want the full step-up at the first spouse's death rather than the half-step-up available in their home state.

What Executors Must Do When a Community Property Trust Exists

If a decedent was married and held assets in an Alaska Community Property Trust, the executor has a critical, time-sensitive obligation: document the fair market value of every community property asset on the exact date of death.

This is the date-of-death stepped-up basis. It must be established with qualified appraisals or other supportable valuations. For real estate, a certified appraisal is typically required. For investment accounts, date-of-death account statements are sufficient. For CFEC fishing permits, CFEC Quartile Tables or a formal CFEC appraisal can support the value.

This documentation becomes the surviving spouse's permanent basis record. If an Alaska home was worth $1.2 million on the date of death and was held as community property, the surviving spouse's basis in the property is $1.2 million — not the couple's original purchase price. Every dollar of future appreciation from that date forward is the only amount subject to capital gains tax on a future sale.

Failure to obtain and retain this documentation at the time of death is not something you can correct later with equal precision. Property values fluctuate. Comparable sales data from the specific date of death becomes harder to reconstruct. The IRS will challenge a stepped-up basis claimed years after death if there is no contemporaneous documentation to support it.

Common Misunderstandings

"All Alaska married couples automatically get the double step-up." This is false. The double step-up only applies to assets that were formally elected as community property through a Community Property Agreement or properly structured Community Property Trust during the spouses' lifetimes. Property that was held jointly under standard common-law title receives only the standard half step-up.

"This only works if the trust was set up in Alaska." The trust must have an Alaska trustee and meet the AS 34.77.100 nexus requirements, but the couple can be domiciled anywhere.

"The trust is complicated and expensive to maintain." For most non-resident couples using this structure, the annual trustee fees are modest relative to the capital gains tax savings. The cost-benefit calculation tips heavily in favor of the trust for any couple holding more than $1 million in highly appreciated assets.

For a step-by-step analysis of whether an Alaska Community Property Trust makes sense for your situation, and for guidance on documenting stepped-up basis during estate administration, the Alaska Final Tax & Estate Tax Guide at /us/alaska/estate-tax/ covers both the planning mechanics and the executor's post-death obligations.

The Core Opportunity

The Alaska Community Property Act is not widely understood outside estate planning and tax circles. For surviving spouses in common-law states who are executing estates that include appreciated property, the first question to ask is whether the decedent ever established an Alaska Community Property Trust or Agreement. If the answer is yes, the double step-up may have just eliminated a very large capital gains tax bill. If the answer is no, it is worth understanding what the couple missed and whether any assets can still be structured efficiently for the surviving spouse's eventual estate.

The window to document basis is immediate. The opportunity to preserve what the law provides is only available when you know to look for it.

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