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 Guam Marital Deduction Trust, also known as Trust A, and the Bypass Trust, also known as Trust B, are two separate types of trusts designed to provide advantageous estate planning opportunities for married couples residing in Guam. These trusts allow spouses to maximize the use of federal estate tax exemptions and minimize the overall tax burden on their combined estates. Here is a detailed description of each trust: 1. Guam Marital Deduction Trust (Trust A): The Guam Marital Deduction Trust, or Trust A, is an irrevocable trust created by one spouse — the grantor – for the benefit of the othespotsus— – the beneficiary. The purpose of this trust is to take advantage of the federal marital deduction, which permits the unlimited transfer of assets between spouses without incurring federal estate tax at the time of the transfer. By establishing Trust A, the granter spouse ensures that all assets placed in the trust will be eligible for the marital deduction, thus effectively delaying any potential estate tax until the surviving spouse's death. Upon the surviving spouse's passing, the assets remaining in Trust A may be subject to estate taxes. 2. Bypass Trust (Trust B): The Bypass Trust, also known as the Credit Shelter or the Family Trust, is another irrevocable trust created by one spouse — the grantor – to hold assets for the benefit of the surviving spouse and/or other beneficiaries (such as children or grandchildren). The purpose of Trust B is to use the granter spouse's federal estate tax exemption amount to shelter assets from taxation upon the surviving spouse's death. While Trust A is designed to take full advantage of the marital deduction, Trust B helps maximize the use of both spouses' estate tax exemptions. Assets placed in Trust B will not be included in the surviving spouse's estate, thereby potentially reducing taxes on the overall estate, especially if it has appreciated significantly over time. Trust B can offer flexibility in terms of distributions to beneficiaries, as determined by the granter spouse when establishing the trust. It is important to note that the effectiveness and suitability of these trusts will depend on individual circumstances and the applicable tax laws at the time of implementation. Seeking professional advice from an estate planning attorney or tax specialist in Guam is crucial to ensure proper establishment and administration of the Guam Marital Deduction Trusts — Trust A and Bypass Trust B.
