What is AB trust planning?

Share This Article

If a married couple has an AB Trust estate plan when the first spouse dies, an amount equal to the federal estate tax exemption will be funded or moved into the B (Bypass) Trust, and anything over this amount will remain as the A (marital) Trust. This allows avoidance of estate taxes after the death of the first spouse. For 2022 the personal federal estate tax exemption amount is $12.06 million (it was $11.7 million for 2021). Because there is only a fraction of a percent of estates that exceed the current estate tax exemption, an AB trust arrangement is rarely needed. However, the Tax Cuts and Jobs Act which doubled the amount of exemption, is set to expire on January 1, 2026, unless Congress acts. If this is not the case, family trusts, aka bypass trusts, may become more important again.

Back to the AB trust arrangement: The A Trust is a revocable marital trust over which the surviving spouse exerts full control. In contrast, the B or bypass trust is an irrevocable trust. The B (family) trust is an irrevocable trust with limited support provisions for the surviving spouse. The funds are intended to be passed to the beneficiaries initially selected by the couple, typically children, upon the death of the surviving spouse. This arrangement allows the beneficiaries to take the funds without having to pay taxes. See also the related QTIP-trust.

 

Name  Synonyms Type Funding Role Tax Benefit
A-Trust  Marital Trust
Survivor’s Trust
revocable anything above the estate tax exemption amount benefits surviving spouse for life, subsequently descendants works through B-Trust in lowering the estate tax

 

B-Trust Family Trust
Credit Shelter Trust
Bypass Trust
Exemption Trust
irrevocable up to the estate tax exemption amount benefits descendants, and, if desired, income for life to the surviving spouse removes assets from the grantor’s taxable estate

We don’t spam! No more than five mailings per year.

More Articles

Schedule a free consultation with Klaus Gottlieb

© 2024 wealthcarelawyer.com. All rights reserved.

Wealth care is an orchestrated approach to your estate planning needs that considers multiple dimensions and coordination with your existing financial and tax professionals.