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September 08, 2021

A-B Trusts

An overview of A-B Trusts as an advanced estate planning tool.

An “A-B Trust” is a form of Joint Revocable Living Trust that automatically splits into two separate Trusts upon the first spouse’s death. These two Trusts are called the “A-Trust” and the “B-Trust.”

The “A-Trust” contains the surviving spouse’s assets. The “A-Trust” will continue to be a Revocable Living Trust that the survivor will be able to modify throughout their lifetime as they please.

The “B-Trust” contains the deceased spouse’s assets. Its assets will typically be equal to the federal estate tax exemption. It is an Irrevocable Trust that the survivor will have minimal control over.

An advantage of the survivor’s limited control is that the assets of this Trust do not count toward federal estate taxes, government “spend down” requirements, nor are these assets subject to future creditors or lawsuits.

Upon the survivor’s death, assets contained in the “B-Trust” will be distributed to its beneficiaries without tax. Assets held in the “A-Trust” will be distributed to its beneficiaries and taxed only to the extent its assets exceed the federal estate tax exclusion available for the year in which the surviving spouse dies.

This article represents the opinion of the author and is intended for educational purposes. This article does not constitute legal advice, nor does it create an attorney-client relationship. One should always consult with an experienced attorney before making estate planning decisions.

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