A-B Trust

What is an A-B Trust?

An A-B trust, also known as a marital trust or a bypass trust, is a type of trust that is used to transfer assets to the surviving spouse after the first spouse dies. It's a common estate planning tool that can help reduce estate taxes and protect the surviving spouse's financial security. Here's what you need to know about A-B trusts.

How an A-B Trust Works

An A-B trust is set up by a married couple and is designed to hold assets that will be transferred to the surviving spouse after the first spouse dies. The trust is divided into two parts: the A trust and the B trust.

  1. The A trust is also known as the survivor's trust or the marital trust. It holds assets that will be transferred to the surviving spouse after the first spouse dies. The surviving spouse has the right to use and manage the assets in the A trust, but they do not own the assets outright.
  2. The B trust, also known as the bypass trust or the deceased spouse's trust, holds assets that will be transferred to the couple's children or other beneficiaries after the surviving spouse dies. The surviving spouse does not have the right to use or manage the assets in the B trust.

Benefits of an A-B Trust

An A-B trust can offer a number of benefits for married couples, including:

  1. Estate Tax Savings: One of the main benefits of an A-B trust is that it can help reduce estate taxes. When the first spouse dies, the assets in the A trust are transferred to the surviving spouse and are not subject to estate taxes. When the surviving spouse dies, the assets in the B trust are also transferred to the couple's children or other beneficiaries and are not subject to estate taxes. This can help reduce the overall tax burden on the couple's estate.
  2. Financial Security: An A-B trust can also provide financial security for the surviving spouse. The assets in the A trust can be used to provide the surviving spouse with income and support, while the assets in the B trust are preserved for the couple's children or other beneficiaries.
  3. Asset Protection: An A-B trust can also provide asset protection for the surviving spouse. If the surviving spouse gets sued or faces financial challenges, the assets in the A trust are protected from creditors and cannot be seized to pay debts.

Considerations for Setting Up an A-B Trust

If you're considering setting up an A-B trust, there are a few things to keep in mind:

  1. Estate Planning: An A-B trust is an important estate planning tool, and it's a good idea to work with an experienced estate planning attorney to set up the trust. An attorney can help you understand the benefits and limitations of an A-B trust and can ensure that the trust is properly drafted and funded.
  2. Timing: It's important to set up an A-B trust while both spouses are still alive. If one spouse dies before the trust is set up, it may be too late to take advantage of the benefits of the trust.
  3. Flexibility: An A-B trust can be a flexible estate planning tool, and it can be designed to meet the specific needs and goals of the couple. For example, the trust can be set up to provide income and support to the surviving spouse while also preserving assets for the couple's children or other beneficiaries.
  4. Costs: There are costs associated with setting up and maintaining an A-B trust, including attorney fees and trust administration fees. It's important to understand the costs of the trust and to weigh them against the benefits before deciding if an A-B trust is right for you.

An A-B trust can help reduce estate taxes

An A-B trust, also known as a marital trust or a bypass trust, is a type of trust that is used to transfer assets to the surviving spouse after the first spouse dies. It's a common estate planning tool that can help reduce estate taxes and protect the surviving spouse's financial security. By understanding how an A-B trust works and the benefits it can offer, you can make informed decisions about your estate planning options.