This article will provide basic information about an AB Trust, also called a bypass trust or a credit shelter trust with information summarized from Investopedia.com.
What is an AB Trust?
An AB trust is a joint trust for a married couple that is created for the purpose of minimizing estate taxes. It is formed with each spouse putting assets into the trust and naming as the final beneficiary any person except the other spouse. The name AB comes from the action that splits one trust into two separate entities when one spouse dies such that Trust A is the survivor’s trust and trust B is the decedent’s trust.
Why were AB Trusts previously ubiquitous but more recently they are no longer widely used?
While A-B trusts are a great way to minimize estate taxes, they are not used much today because of changes to the tax code. Now each individual has a combined lifetime federal gift tax and estate tax exemption was $12.06 million in 2022, and has risen to $12.92 million in 2023
What might be better for you than an AB Trust?
According to nolo.com, for most people, a simple probate-avoidance trust is better than an AB trust, which can be more complex. A simple revocable trust is not designed to continue past the death of a spouse. Rather, the trust assets are quickly distributed to the people who inherit them. This avoids probate proceedings, saving money and hassle, and because the trust does not stay in existence for years, no trust tax returns are necessary.
Contact an Experienced Estate Planning Firm
Estate planning can seem overwhelming or confusing to some people, which may result in a person delaying getting a plan in place. For estate planning made easy, contact us at the Law Office of David Knecht. We have extensive experience with estate planning tools and can help you create the right plan for you and your loved ones. Contact us at 707-451-4502.
