AB Trusts

What is an AB Trust?

An AB Trust is two different trusts used as part of their Estate Plan to minimize estate taxes. The married couple creates these trusts in Wills or Revocable Living Trusts. The “A Trust” often called the “Marital Trust“, “Marital Deduction Trust” or “QTIP” Trust holds and amount that the deceased spouse’s exemption cannot shelter from tax and the “B Trust” or “Credit Shelter Trust,” “Family Trust,” or “Bypass Trust” holds the amount that the deceased spouse’s exemption can shelter.

What is the Purpose of an AB Trust?

The AB Trust allows a spouse to provide for the care of the surviving spouse while preserving all death tax exemptions and providing shelter from the surviving spouse’s creditors and future spouses. The AB Trust can also be crafted to ensure that the assets pass to the deceased spouse’s children or family at the surviving spouse’s death, keeping them out of the hands of the second husband/wife.

How an AB Estate Plan Works:

The couple has their Estate Planning Lawyer incorporate the necessary technical language into their Will or Revocable Living Trust.
Assets are arranged to comply with the AB Trust plan.
At the first spouse’s death, an amount that can be sheltered from estate tax pours into the Bypass or “B” Trust. The remainder pours into the Marital or “A” Trust.
During the surviving spouse’s life, the assets in both trusts are sheltered from creditors and subsequent marriages.
The “A” Trust is included in the surviving spouse’s estate, utilizing his or her estate tax exemption.
The assets can continue in protective trusts for their children, sheltered from their divorces and creditors.

Typical Estate Questions About AB Trusts:

Here are some questions clients, beneficiaries, and Trustees ask:

Can I have more than one beneficiary in the AB Trust?

The B Trust can include beneficiaries other than the surviving spouse. For example, children are often included as beneficiaries.

How is the AB Trust different from the Marital Trust?

The “Marital Trust” is another term for the “A” Trust. The Marital Trust is a part of an AB Trust Estate Plan.

What are the Pros of AB Trust Planning?

Asset protection, estate tax avoidance and maintaining assets within the family.

What are the Cons to the AB Trust?

At the first spouse’s death, careful planning is required to follow the steps necessary to preserve the tax exemptions. Each trust is assigned a tax ID and must file a separate annual income tax return.

Is the AB Trust better than the Marital Trust?

The “Marital Trust” is another term for the “A” Trust. The Marital Trust is a part of an AB Trust Estate Plan.

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If you have any questions about AB Trusts or any other estate planning topics, please contact us to schedule a free consultation. For more than two decades Klenk Law has focused only on Estate Law. We’ve seen it all, and this experience allows us to explain complex estate law and planning techniques clearly and concisely. We make it easy for you to understand AB Trusts so you can make the best decisions for yourself and your family.

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Peter Klenk is the founding member of Klenk Law, a seven attorney boutique estate planning law firm. We serve clients in Pennsylvania, New Jersey, New York, Minnesota and Florida. Peter Klenk received his Masters in Taxation LL.M. from NYU Law School and his J.D. from the University of Minnesota Law School. He served his country in the Navy JAGC during Desert Storm. Easy to talk to, feel free to call Peter for an appointment. We will make the process as easy as possible!

AB Trusts: Everything You Need to Know