When a married couple is looking to maximize the usage of federal exemptions for their estate taxes, an A and B trust will play a large part in this process, especially since these trusts are part of the overall estate plan. The details of this trust system are included as part of the Revocable Living Trust and/or a Last Will and Testament. This two part system refers to the marital trust (A) and the bypass trust (B).
- Exemption: Back in 2011, California Trust & Estate Planning Lawyers began utilizing an estate tax exemption for married couples. After the date of this inception, if a spouse were to pass away and their federal estate tax was not necessary in order to avoid estate taxes, that (unused) portion of the estate tax exemption would then apply to the other living partner’s (future) estate tax exemption. This maximizes the amount of money that can be passed on to heirs without the need for an A and B trust. However, this type of trust is can still be extremely beneficial, despite any tax exemption needs.
- Second Marriages: While exemptions exist, there are different scenarios that apply to an A and B trust. For example, if a spouse has a second marriage with other children involved, it can be set up so that there are separate assets for each of the different families. The A and B trust will come into play in order to keep these assets separate and distinctive, and to help ensure that each parent is able to pass down assets to his or her own children.
- How It Works: When a California Trust & Estate Planning Lawyer is drawing up a Living Trust or a Last Will and Testament, the appropriate A and B trust language will need to be used. The wording can be tricky and if not completed properly, is not effective. Because of this, it is important to utilize the services of a trusted and experienced professional. A couple will then choose how to divide assets. For example, they can divide up their different assets in a way that results in each spouse having roughly the same amount of assets in their name, or they can divide it so that each leaves the assets they brought into the marriage to their own children. Assets cannot all be left in joint accounts, as this makes the A and B trust system completely null and void. When the first spouse dies, up to $5,450,000 (currently, but it the amount increases each year with inflation) will be funded into the B trust (this is effective after the year 2013). While the B Trust is irrevocable, the B trust distributions can be somewhat flexible and certain portions may be used for the spouse that has survived, as well as any other beneficiaries.
There are always exceptions to the rules and many instances, an A and B trust is not the proper planning technique, or is not necessary. It is best to consult the assistance of a trusted professional who can help you sort out your end-of-life financial information, so that you can make the best choices possible for your estate, your surviving spouse, and your beneficiaries. I’m sure you can imagine – there is a lot that can go wrong when it comes to your assets and your finances after your death, and while you may have attempted to plan accordingly throughout your life, you don’t want your hard-earned money falling into the wrong hands or being distributed in a way that you did not plan for.
If you need help with an A and B trust, or have any questions about this or any other planning techniques, please call Patton Law Group. Our experienced attorneys will work with you to plan for the future, and protect your assets.
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