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 Minnesota Marital Deduction Trust, also known as Trust A, is a legal arrangement designed to provide financial protection and flexibility to married couples in Minnesota. This trust allows spouses to transfer assets to one another without incurring federal estate tax liability upon the first spouse's death. In a Minnesota Marital Deduction Trust — Trust A, the spouse who passes away leaves their share of the estate in the trust for the surviving spouse's benefit. The surviving spouse becomes the beneficiary of Trust A and has the right to access income generated from the trust's assets during their lifetime or for a specified period. Additionally, the surviving spouse can also have limited access to the trust principal for specific purposes, such as healthcare or educational expenses. The main objective of Trust A is to take advantage of the marital deduction in order to minimize estate tax liability. Through this deduction, the value of assets transferred to Trust A is excluded from the deceased spouse's estate, reducing the overall taxable estate value. This deduction allows for significant tax savings, as the surviving spouse only pays estate taxes once both spouses have passed away. Bypass Trust B, also known as a Credit Shelter Trust, is another type of trust commonly used in conjunction with Trust A. This trust is designed to further optimize estate tax planning and maximize the amount of wealth that can be transferred to the next generation. In a Minnesota Marital Deduction Trust — Bypass Trust B structure, a portion of the deceased spouse's estate equal to their remaining federal estate tax exemption is transferred to Trust B. The surviving spouse does not have direct access to the principal assets held in Trust B but can benefit from the income generated by these assets. Upon the surviving spouse's death, the remaining assets in Trust B pass to the named beneficiaries, such as children or other relatives, free from additional estate tax. By combining Trust A and Bypass Trust B, married couples in Minnesota can efficiently manage their estate planning, minimize estate taxes, and ensure a smooth transfer of assets to their heirs. It's crucial to consult with an experienced estate planning attorney or financial advisor to fully understand and implement the appropriate Minnesota Marital Deduction Trust strategies based on individual circumstances and goals.
