This tutorial outlines a technique which is quite handy when setting up an arm. Very often I see work where the movement/rotations are incorrect at the wrist as people sometimes overlook how things actually work below the elbow. If you take a look at your own wrist and 'rotate' your hand around, it may seem that you are looking at a ball joint, but you aren't. A wrist can only rotate around two axes, which we will call Y & Z. When you rotate your hand around the X axis line which goes from the elbow to the wrist, you will see that this rotation is originating not at the wrist, but within the forearm. There are two bones in the forearm, the Ulna and the Radius, and it is the movement of these bones which create the 'rotation' for this third axis.

The issue of wrist/forearm rotation may not seem important off the bat when setting up your skeleton, but it is an issue when setting up deformations. Joint driven deformations are based on clusters which are parented to the joints... But a joint can not effect two different regions of a surface based on which axis it is rotating on... Since when you rotate the wrist joint in Y & Z the wrist geometry needs to deform, when we rotate in X, that same region would also be affected... but we need the effect to originate within the forearm. This needs to be accomplished by having an additional joint: the forearm joint.
So as previously stated, people often set up an arm with three joints: shoulder, elbow and wrist. But what we want to do is use four joints: shoulder, elbow, forearm and wrist. In figure 1, we see an arm created in such a way.

But, an important note is that I grid snapped the elbow, forearm, wrist and middle finger knuckle so that they are in a perfectly straight line. This way you know that the axes are aligned properly. We can now rotate the elbow so that the skeleton would better fit a model as in Figure 2.

The problem we now face, however, is that the elbow has a Z-rotation value which is non-zero. This is bad. Whenever creating a skeleton, each joint's rotation values should be 0,0,0 in what we call the default pose, or bind pose once skinning has begun. To force the elbow to zero out it's rotation values, select the elbow joint and use the Modify/Freeze Transforms tool. You will notice that the elbow now has rotation values of 0,0,0, while it has remained in the correct, modified orientation. A new problem will result from using the Freeze Transforms tool, unfortunately. If you select the elbow and activate the rotate tool, you will notice that its local rotation axis has been skewed to align itself with it's parent's axis (figure 3).

This has also occured for all of the child joints of the elbow as well (forearm, wrist, etc). The solution to this is to select the elbow joint and type the following in the command line: 'joint -e -zso -oj xyz -ch'. This will align the local rotation axis of the elbow, and its children, with their respective descending bones, getting us back to our original local rotation axis orientations.
With the skeleton finished, we can begin setting up our kinematic controls. You may be used to creating an IK handle from the shoulder to the wrist, but this will not work in this type of set-up. The reason is, when you add an IK handle and keyframe it, all joint rotations above the IK handle become uneditable. Therefore, we can not rotate our forearm joint. The IK handle must therefore be created from the shoulder to the forearm joint as in figure 4.

We are using an RP IK handle, btw, so that we will have control over the IK handle's orientation. With this complete, even if the IK handle is keyframed, we can still manually keyframe the forearm joint's rotation in X, and the wrist joint's rotations in Y and Z. We could consider ourselves finished at this point, but there are a few steps remaining to clean things up and make this arm more intuitive to animate. Animating an IK handle at the forearm joint is strange, and having to select the forearm and wrist joints independently is tedious.

The first step involves the IK handle. First make sure that the IK handle is not keyframed and has not been modified. In Maya, it is possible to offset an IK handle from the position of its end effector. Figure 5 shows the Hypergraph for our scene, where we can see the IK handle transform node existing independantly, outside the skeleton hierarchy.

Furthermore, we can see the 'End Effector' node for the IK handle sitting in the hierarchy as a child of the elbow joint. If you select the end effector node and invoke the Move tool, you will notice that this node's pivot point rests at the forearm joint. Also notice that we can not move it. But, if we hit the Insert key, we can move the pivot point of the end effector. While moving the end effector's pivot point, notice how the IK handle is moving with it (figure 6).

What we are going to do is snap the end effector's pivot point to the wrist joint using 'point' snapping. (point snapping also functions as joint snapping). What we have now done is modified how the IK handle behaves, while we have not modified which joint rotations it controls. So that if we now keyframe the IK handle, we are still free to manually rotate the forearm joint. Pretty cool. Not done yet... again, make sure the IK handle does not have any keyframes on it. If you select the IK handle and look in the Channel Box, you will see that its translate and rotate values are non-zero... this is simply the nature of new IK handles, but we need to address this. Just as we want our joint rotations to be 0,0,0 in their default pose, we want the same of our IK handles rotations and translations. This makes life much simpler when trying to return a character to its default pose. To do this, we will select the IK handle and group it to itself. We will then move the pivot point of this new transform node to the wrist joint, and name the node 'Arm' (Figure 7).

Now we have a new, clean, node whose values for translate and rotate are 0,0,0. But beware... modifying the IK handle at this point will mess things up. You must hide the IK handle, then display the Selection handle for the new transform node using Display/Object Components/ Selection Handles. So from now on, when you want to move the arm, you will select this selection handle, instead of the IK handle itself. Also notice that by using this technique, we can not only move the selection handle, we can rotate it as well to modify the orientation of the arm.
Now that we are finished with the IK, we can move on to how we should animate the rotations of the wrist and forearm joints. Again, animating two joints is more tedious than one... what would be nice would be if we could rotate the wrist joint in XY and Z, but have it know that when it is rotated in X, it will actually not rotate from the wrist, but from the forearm. To do this we must create a Locator and call it 'wrist'. This locator will be set up to control the rotations of both the wrist and forearm joints. The first step is to joint snap the locator to the wrist joint as in figure 8.

Now we need to align the locator's rotation axis with the wrist. To do this, parent the locator to the wrist joint, then Freeze transform it. You will notice that its local axis will automatically orient itself with the wrist joint's as in figure 9.

But we do not want to leave the locator parented to the wrist; since it is going to be driving the rotations of the wrist and forearm, that would mean we have a child's rotations controlling its parent and grandparent... this can create funky behavior. So we will now select the Locator and parent it to the forearm joint instead.

We are now ready to set up how the locator is controlling the wrist and forearm joint rotations. Open the Connection Editor and load the Locator as the Output. Now load the wrist joint as the Input. Open the 'rotate' folders in each column and connect RotateY of the locator to RotateY of the wrist, and RotateZ of the locator to Rotate Z of the wrist as in figure 10.

Now load the forearm joint as the input and connect the Rotate X of the locator to the Rotate X of the forearm joint. And there you go.

So while it took a while to tell you how to do this, once you get used to it, it only takes a couple minutes to set-up. We have a selection handle at the wrist to modify our arm IK, and a Locator at the wrist to control the orientation of the hand. The final step, to be nice and clean, is to 'lock' the scale XYZ of the IK handle and set them to be non-keyable in the Channel Control window. Then for the Locator, lock its translate XYZ and scale XYZ, then set those to be non-keyable... Then for the original IK handle, which should be hidden at this point, lock its translate XYZ.... this way an animator can't break it... it happens.