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An AB trust allows couples to reduce or avoid estate
taxes. Each spouse puts his or her property in an AB trust, and when the
first spouse dies, his or her half of the property goes to the
beneficiaries named in the trust -- commonly, the grown children of the
couple -- with the condition that the surviving spouse has the right to
utilize the income as well as use the trust to provide for their health,
maintain their standard of living, pay for education, and provide various
other benefits.
When the surviving spouse dies, the property
passes to the trust beneficiaries. It is not considered part of the
second spouse's estate for estate tax purposes. This allows the trust to
use both spouses lifetime exemption to "shelter" a large amount of
assets. |
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This
AB trust, allows a married couple to pass
a significant amount
of property to their children or other
beneficiaries after both spouses die, while
at the same time ensuring the surviving
spouse is financially comfortable during his
or her lifetime. It is one of the most
powerful tax avoiding tools in an estate
planner's arsenal. |
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When setting up an AB
trust, each spouse names final beneficiaries
who will receive the trust's property when
the surviving spouse dies. Spouses often
name the same people -- their children -- as
final beneficiaries, but they can name
anyone they want.
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Using this kind of trust keeps the second
spouse's taxable estate half the size it
would be if the property were left directly
to the spouse. This type of trust is also
known as a bypass or credit shelter trust.
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