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 Marital Deduction Trust, also known as a Bypass Trust, refers to a trust structure utilized in estate planning to minimize estate taxes after the death of a spouse. Specifically, in the state of Indiana, the Indiana Marital Deduction Trusts — Trust A and Bypass Trust B are two common types of trusts used for this purpose. 1. Indiana Marital Deduction Trust — Trust A: Trust A, also known as the Marital Trust or the A Trust, is a testamentary trust that is established upon the death of the first spouse. In this trust, the deceased spouse's property passes into the trust, and the surviving spouse becomes the primary beneficiary. The surviving spouse is entitled to receive income from the trust during their lifetime and may also have access to the principal if needed. Trust A qualifies for the unlimited marital deduction, meaning that the value of the trust assets is not subject to federal estate tax upon the first spouse's death. However, upon the death of the surviving spouse, these assets might be subject to estate taxation. 2. Indiana Bypass Trust — Trust B: Trust B, also known as the Credit Shelter Trust, Family Trust, or B Trust, is established alongside Trust A upon the death of the first spouse. This trust is designed to utilize the deceased spouse's available federal estate tax exemption. Assets equal to the exemption amount are transferred into Trust B. Unlike Trust A, the surviving spouse is not the primary beneficiary of Trust B. Instead, the beneficiaries might include the couple's children or other designated individuals. The surviving spouse can still receive income from Trust B, but their access to the principal may be more restricted. By utilizing the federal estate tax exemption, Trust B helps to shelter assets from estate taxes upon the death of the surviving spouse. Both Trust A and Trust B work together as complementary estate planning tools, aiming to maximize estate tax savings while ensuring financial security for the surviving spouse. These trusts enable individuals to pass on their wealth to their chosen beneficiaries efficiently and minimize the negative impact of estate taxes. It is important to consult with an experienced estate planning attorney or financial advisor to determine the most suitable type of marital deduction trust(s) based on individual circumstances and goals. They will assist in creating a customized plan that aligns with Indiana's specific laws and meets the unique needs of each couple or individual.
