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.
A District of Columbia Marital Deduction Trust, commonly known as a Trust A, and a Bypass Trust B, are two essential components of estate planning strategies used in the District of Columbia (D.C.). These trusts serve different purposes and cater to specific needs of individuals and couples looking to protect their assets, minimize taxes, ensure financial security for their spouses, and preserve their estate for future generations. Let's delve into the details and explore the distinct features and benefits of each trust. District of Columbia Marital Deduction Trust — Trust A: Trust A, also referred to as a Marital Deduction Trust, is designed to provide financial security and support to the surviving spouse after the death of the granter. This trust is established as a part of the granter's estate plan and holds assets that are intended to qualify for the unlimited marital deduction. The unlimited marital deduction allows the transfer of assets from the deceased spouse's estate to the surviving spouse without incurring any federal estate tax at the time of the first spouse's death. The primary goal of Trust A is to ensure that the surviving spouse has sufficient resources to maintain their lifestyle and meet their financial needs while minimizing estate tax liability. It allows the surviving spouse to have access and control over the trust assets during their lifetime, while still including the assets in their own estate for future transfer to their chosen beneficiaries. Bypass Trust — Trust B: A Bypass Trust, also known as a Credit Shelter Trust or a Family Trust, works in conjunction with Trust A to maximize estate tax planning opportunities for married couples. This trust allows the granter to utilize their federal estate tax exemption by sheltering a portion of their assets from estate taxes upon their death. With a Bypass Trust, a certain amount of the granter's assets, up to the estate tax exemption limit, is transferred and held separately from the Marital Deduction Trust (Trust A). The assets in Trust B bypass the surviving spouse's estate and are safeguarded for the benefit of future generations, typically children or other designated beneficiaries. By using the granter's estate tax exemption, significant estate tax savings can be achieved. Different Types of District of Columbia Marital Deduction Trusts: Although the terms Trust A and Trust B are commonly used to describe these trusts, it's important to note that there can be variations and modifications tailored to meet individuals' specific needs and circumstances. Some possible variations include: 1. Qualified Terminable Interest Property (TIP) Trust: This type of Trust A provides flexibility and control over the ultimate distribution of assets. It allows the granter to specify the beneficiaries who will receive any remaining trust assets after the surviving spouse's death. 2. Irrevocable Life Insurance Trust (IIT): While not technically Trust A or B, an IIT is another relevant trust commonly used in estate planning. It is designed to hold life insurance policies outside the granter's estate, ensuring that the death benefit proceeds are excluded from the estate tax calculation. Understanding the implications and benefits associated with these trusts is crucial for efficiently managing one's assets and estate planning. Engaging with an experienced estate planning attorney or financial professional in the District of Columbia is highly recommended navigating the complexities and ensure compliance with applicable laws and regulations.
