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 New Hampshire Marital Deduction Trust, specifically Trust A and Bypass Trust B, plays a crucial role in estate planning for couples. These trusts are designed to maximize the utilization of tax exemptions and minimize estate tax liabilities upon the death of the first spouse. Trust A, commonly known as the Marital Trust or the "A" trust, is established to provide financial security for the surviving spouse. It allows the deceased spouse to transfer assets into the trust, ensuring that the surviving spouse has access to income generated by those assets or even the ability to use the principal if necessary for their well-being. By placing assets in Trust A, the estate can take full advantage of the unlimited marital deduction, which permits the transfer of assets between spouses without incurring estate or gift taxes. On the other hand, Bypass Trust B (often referred to as the "B" trust, Credit Shelter Trust, or Family Trust) is created to utilize the deceased spouse's estate tax exemption. When the first spouse passes away, a certain portion of their estate is allocated to this trust, up to the maximum exemption allowed by the law. Assets held in Bypass Trust B bypass the surviving spouse's estate, consequently reducing their taxable estate upon their death. This trust benefits not only the surviving spouse but also future generations, as it can be structured to benefit children or other beneficiaries. There are different types of Trust A and Bypass Trust B options available, modified to suit couples' unique circumstances and objectives. Some variations include: 1. TIP Trust (Qualified Terminable Interest Property Trust): This type of Trust A allows the surviving spouse to receive income from the trust while preserving control over the assets. Upon the surviving spouse's death, the trust property can pass to designated beneficiaries, such as children from a previous marriage. 2. Special Needs Trust: In situations where the surviving spouse has special needs or requires long-term care, Trust A can be structured as a Special Needs Trust. It ensures that the surviving spouse can receive income from the trust without impacting their eligibility for government assistance programs. 3. Irrevocable Life Insurance Trust (IIT): While not directly related to Trust A or B, an IIT can be a valuable addition to estate planning. It allows individuals to remove life insurance proceeds from their taxable estate, potentially directing them into Trust A or Bypass Trust B. It is essential to consult with an experienced estate planning attorney who specializes in New Hampshire laws to determine the most suitable type of Marital Deduction Trusts for individual needs. Each trust can be customized to provide both immediate financial benefits for the surviving spouse and long-term estate tax planning advantages for the entire family.
