An A-B trust is a revocable living trust which divides into two trusts upon the death of the first spouse. This type of trust makes use of both the estate tax exemption ($3.5 million per person in 2009) and the marital deduction to make it so that no estate taxes are due upon the death of the first spouse. The B Trust is also known as the Bypass trust and it contains the amount of that years applicable exclusion amount. The A trust is the marital deduction trust which will typically contain both the surviving spouse's separate property and one half community property interests but also the residue of the deceased spouse's estate after the estate tax exemption has been utilized by the B trust. The use of an A-B trust ensures that both spouse's applicable exclusion amounts are effectively used, thereby doubling the amount of property which can pass to heirs free of Federal Estate Taxes.
The Alaska Marital Deduction Trust, commonly known as Trust A, and the Bypass Trust, often referred to as Trust B, are crucial components of estate planning strategies for married couples in Alaska. These trusts allow individuals to protect their assets and minimize estate taxes while providing for their surviving spouse. Trust A, also known as the Marital Deduction Trust, is established upon the death of the first spouse. This trust is designed to hold property and assets for the benefit of the surviving spouse, without incurring estate taxes. By utilizing the unlimited marital deduction, the deceased spouse's estate can pass assets to the surviving spouse's trust free of estate taxes, therefore preserving the value of the estate. Trust A allows the surviving spouse to have access to the trust's income and, in some cases, principal as well. Trust B, on the other hand, is commonly referred to as the Bypass Trust or the Credit Shelter Trust. This trust is also established upon the death of the first spouse but serves a different purpose. Trust B ensures that a portion of the deceased spouse's estate, equal to the maximum estate tax exemption, is sheltered from estate taxes. This trust allows the assets to grow free from estate taxes, benefiting future generations. The surviving spouse can receive income generated by Trust B and, in some cases, principal distributions as well. There are different variations of Trust A and Trust B, depending on the specific needs and goals of the individuals. One common type of variation is the TIP Trust (Qualified Terminable Interest Property Trust), which ensures that the surviving spouse receives income from the trust during their lifetime while preserving the principal for the beneficiaries specified by the deceased spouse. Another variation is the Marital Limited Power of Appointment Trust, where the surviving spouse has the power to appoint trust assets among a specific group of beneficiaries, such as children or grandchildren, while still benefiting from the trust's income. In conclusion, the Alaska Marital Deduction Trust, specifically Trust A and Trust B, offer valuable estate planning options for married couples. These trusts provide asset protection, minimize estate taxes by utilizing the marital deduction and estate tax exemption, and allow for the distribution of assets according to the deceased spouse's wishes. The various types of Trust A and Trust B, such as the TIP Trust and Marital Limited Power of Appointment Trust, provide flexibility and customization to meet the unique needs of each couple.
