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 Maryland Marital Deduction Trust, also known as a Trust A, is a legal tool used to protect a surviving spouse's financial interests while minimizing estate taxes upon the passing of the first spouse. This trust is an essential part of estate planning strategies, providing numerous benefits for married couples residing in Maryland. By creating a Trust A, the assets of the deceased partner can be allocated to the trust, ensuring their value is not subject to estate tax. Within a Trust A, the surviving spouse is named as the primary beneficiary and is entitled to receive income generated from the trust's assets during their lifetime. However, the spouse does not have direct control over the trust's principal. This arrangement allows the surviving spouse to benefit from the trust's assets while preserving the estate's value and reducing the future taxable estate. In the case of a second marriage or blended family situation, where the surviving spouse has children from a previous union, a Trust B or a Bypass Trust can be established. This type of trust aims to protect the interests of both the surviving spouse and the children by ensuring that the deceased spouse's assets are distributed appropriately. Trust B, or Bypass Trust, contains the assets and property of the deceased spouse that are not included in the Trust A. The surviving spouse may have limited control over the assets within Trust B, but they still receive the income generated by the trust. This mechanism allows the surviving spouse to live comfortably while preserving the deceased spouse's assets for eventual distribution to the children or other named beneficiaries upon the surviving spouse's passing. The Maryland Marital Deduction Trust consists of two main components — Trust A and Bypass Trust B. Trust A prioritizes the comfort and financial security of the surviving spouse, ensuring a consistent income stream while maintaining the value of the estate by reducing estate taxes. Trust B, or the Bypass Trust, addresses the needs of blended families or situations where distribution to the surviving spouse's children is desired, ensuring the protection and fair distribution of the deceased spouse's assets. In conclusion, the Maryland Marital Deduction Trust — Trust A and Bypass Trust — - are powerful estate planning tools that enable married couples in Maryland to protect their assets, reduce estate taxes, and ensure the financial security of both the surviving spouse and other beneficiaries. By utilizing these trusts, couples can create a comprehensive estate plan that aligns with their unique needs and goals while minimizing the potential tax burden on their estate.
