While people may have heard of A-B trusts, they may not know what these trusts are or why they are used. These trusts are established by married couples in order to help avoid double-taxation after one spouse dies.
A-B trusts are ones that are set up to split into two trusts following the death of one spouse. Each spouse will place his or her assets in the trust and name a separate beneficiary to his or her portion of the trust.
After one spouse passes away, the surviving spouse will then be able to completely control his or her separate trust, the “A” trust, while having limited control over the decedent spouse’s trust, or “B” trust. Since the decedent spouse’s assets are not considered to be a part of the surviving spouse’s estate, this can help avoid double-taxation that would otherwise occur. A-B trusts can be set up in a way to allow the surviving spouse to continue living in the home while he or she is still alive, but the decedent spouse’s trust will be for the benefit of the named beneficiary.
Trust planning can be complicated. People often have varied goals they wish to accomplish with their estate plans, including passing their assets smoothly to beneficiaries without taxes and free from the court process. People who are considering establishing trusts may want to seek the advice of an estate planning attorney. An attorney may be able to provide guidance as to the type of trust best suited for the individual’s goals and estate needs. In some cases, a person’s estate will not necessitate a trust, and if that is the case, an attorney may instead recommend using different estate planning tools, such as wills, powers of attorney and others.