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AB Trust

Married couples can maximize the use of both of their federal exemptions from estate tax by using AB Trusts as part of their estate plan. The AB Trust system can be set up under the couples' Last Will and Testaments or Revocable Living Trusts. The "A Trust" is also commonly referred to as the "Marital Trust," "QTIP Trust," or "Marital Deduction Trust." The "B Trust" is also commonly referred to as the "Bypass Trust," "Credit Shelter Trust," or "Family Trust."

 

How does it work?

1.         The couple includes the appropriate AB Trust language in their Last Will and Testaments or Revocable Living Trusts.

2.         The couple divides their assets so that each spouse has about the same value of assets in his or her individual name or in his or her Revocable Living Trust.

3.         When the first spouse dies, the first $3,500,000 of his or her assets are funded into the B Trust.

4.         If the deceased spouse's assets exceed $3,500,000, then the excess is funded into the A Trust.

5.         When the surviving spouse later dies, he or she still has his or her own $3,500,000 exemption.

6.         The assets remaining in the B Trust pass estate tax free to the final beneficiaries.

7.         The assets remaining in the A Trust are taxed as part of the surviving spouse's estate.

8.         The balance of the A Trust that remains after the estate tax bill is paid passes to the final beneficiaries.

 
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