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.
Travis Texas Marital Deduction Trust - Trust A and Bypass Trust B
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How to fill out Marital Deduction Trust - Trust A And Bypass Trust B?
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With a marital trust, the surviving spouse generally is able to access the income, as well as the principal balance. However, the principal in a bypass trust can be used for expenses of the surviving spouse, such as health and support, but is not generally accessible to the surviving spouse.
The bypass trust often pays income for life to the surviving spouse. The principal typically remains in the trust until the second spouse dies, when it passes to the heirs without being included in the surviving spouse's gross estate.
A marital deduction trust can take one of two forms, either a life estate coupled with a general power of appointment given to the spouse or a Qualified Terminable Interest Property (QTIP) trust.
The trust gets its name from the fact that it splits into two separate entities when one spouse dies. Trust A is the survivor's trust and trust B is the decedent's trust.
A Marital Trust qualifies for the unlimited marital deduction. The surviving spouse is the sole lifetime beneficiary of the trust and can maintain the right to withdraw income and principal from the trust.
Property interests passing to a surviving spouse that are not included in the decedent's gross estate do not qualify for the marital deduction. Expenses, indebtedness, taxes, and losses chargeable against property passing to the surviving spouse will reduce the marital deduction.
A bypass trust, or AB trust, is a legal arrangement that allows married couples to avoid estate tax on certain assets when one spouse passes away. When one spouse dies, the estate's assets are split into two separate trusts. The first part is the marital trust, or A trust. The second is a bypass, family or B trust.
The assets that are not transferred into the bypass trust will fund the marital trust and will be included in the taxable estate of the second spouse to die. However, because of the unlimited marital deduction, the assets that are placed in this trust will not be taxed in the estate of the first spouse to die.
Two common trusts qualify for the marital deduction: power of appointment trusts and qualified terminable interest property (QTIP) trusts. An important difference between the two types of trusts concerns the surviving spouse's ability to appoint the stock to someone else during life or at death.
If a married couple were planning today, then the B trust should hold assets under $12.06 million in assets. The final beneficiaries of a bypass trust are typically the couple's future heirs, like their children, but a surviving spouse might be able to receive unearned trust income.