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.
Keywords: Ohio Marital Deduction Trust, Trust A, Bypass Trust B Ohio Marital Deduction Trusts are estate planning tools designed to provide tax benefits to married couples in Ohio. These trusts can be classified into two types: Trust A and Bypass Trust B. Let's explore each of them in detail: 1. Trust A: Trust A, also known as the Marital Deduction Trust, is a type of revocable trust typically established by one spouse (usually the first to pass away) for the benefit of the surviving spouse. The main purpose of Trust A is to maximize the utilization of the federal estate tax exemption (currently $11.7 million as of 2021). Features and Benefits of Trust A: — Within the trust, the assets are held and managed for the surviving spouse's benefit while also qualifying for the marital deduction. — The transfer of assets to Trust A upon the first spouse's death is not subject to estate tax. — The surviving spouse can receive income generated by Trust A during their lifetime. — The principal of Trust A can also be accessed by the surviving spouse if necessary, making it a flexible and beneficial tool for the spouse's needs. — Trust A allows the surviving spouse to retain control over the assets, ensuring financial security while also ensuring the assets pass efficiently to the next generation upon their death. 2. Bypass Trust B: Bypass Trust B, commonly referred to as the Credit Shelter Trust or Family Trust, is established simultaneously with Trust A and typically funded with the remaining assets of the deceased spouse after the funding of Trust A. The primary objective of Bypass Trust B is to preserve and maximize the use of both spouses' federal estate tax exemptions. Features and Benefits of Bypass Trust B: — Bypass Trust B is an irrevocable trust, meaning the assets transferred to the trust are excluded from the surviving spouse's estate for estate tax purposes. — The principal and income generated by Bypass Trust B are typically distributed to the children or other beneficiaries upon the surviving spouse's death, bypassing the surviving spouse's estate and minimizing estate tax implications. — Bypass Trust B provides asset protection and ensures the preservation of assets for future generations. — The assets held within Bypass Trust B can also grow and appreciate outside the surviving spouse's estate, reducing estate tax liability further. Overall, Ohio Marital Deduction Trusts, such as Trust A and Bypass Trust B, serve as valuable estate planning strategies that allow married couples to take advantage of tax exemptions while providing financial security for the surviving spouse and preserving assets for future generations.
