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.
Pennsylvania Marital Deduction Trust, also known as the A-B Trust or Bypass Trust, is a type of trust commonly used in estate planning to maximize tax advantages for married couples. This trust allows each spouse to fully utilize their federal estate tax exemption, ultimately reducing the amount of taxes owed upon their passing. The Pennsylvania Marital Deduction Trust comprises two parts: Trust A and Bypass Trust B. Each section serves a specific purpose in estate planning, ensuring the efficient transfer and protection of assets. Here is a detailed description of each trust: 1. Trust A (Marital Trust): Trust A, also known as the Marital Trust, is established to maximize the federal estate tax marital deduction. Upon the death of the first spouse, a portion of the deceased's assets will fund Trust A. The surviving spouse becomes the beneficiary of this trust and has access to income and, in some cases, the principal. The assets allocated to Trust A are not subject to estate taxes since they qualify for the marital deduction. The surviving spouse can utilize these assets during their lifetime, ensuring financial security. 2. Bypass Trust B (Credit Shelter Trust): The Bypass Trust B, also known as the Credit Shelter Trust or Family Trust, is designed to leverage the deceased spouse's federal estate tax exemption. As a result, the assets allocated to this trust can pass to heirs or beneficiaries with minimal or no estate taxes at all, even if they appreciate over time. The primary purpose of Trust B is to "bypass" the surviving spouse's estate, making it an ideal tool for multi-generational wealth preservation. The beneficiaries, usually children or grandchildren, receive distributions while the surviving spouse remains financially secure with access to Trust A's assets. Pennsylvania Marital Deduction Trust offers different variations tailored to individual circumstances and objectives. Some common types include: 1. Disclaimer Trust: This allows the surviving spouse to disclaim or refuse certain assets, redirecting them to the Bypass Trust B instead. This creates additional flexibility and opportunities for tax planning. 2. TIP Trust: Qualified Terminable Interest Property Trust (TIP) provides income to the surviving spouse during their lifetime but dictates who will ultimately receive the trust's principal. This trust is often used in blended families, ensuring financial protection for the surviving spouse while ensuring specific assets pass to the chosen beneficiaries upon their passing. It is important to consult with qualified professionals, such as estate planning attorneys or financial advisors, to determine which type of Pennsylvania Marital Deduction Trust — Trust A and Bypass Trust B is most suitable for your specific needs and goals. They can evaluate your assets, review tax implications, and create a customized plan that maximizes the benefits of these trusts, ensuring a smooth transfer of wealth and minimizing tax burdens for your loved ones.
