An A-B trust is a revocable living trust which divides into two trusts upon the death of the first spouse. This type of trust makes use of both the estate tax exemption ($3.5 million per person in 2009) and the marital deduction to make it so that no estate taxes are due upon the death of the first spouse. The B Trust is also known as the Bypass trust and it contains the amount of that years applicable exclusion amount. The A trust is the marital deduction trust which will typically contain both the surviving spouse's separate property and one half community property interests but also the residue of the deceased spouse's estate after the estate tax exemption has been utilized by the B trust. The use of an A-B trust ensures that both spouse's applicable exclusion amounts are effectively used, thereby doubling the amount of property which can pass to heirs free of Federal Estate Taxes.
Keywords: Florida Marital Deduction Trust, Trust A, Bypass Trust B, estate planning, taxation, spousal trust, marital deduction, surviving spouse, irrevocable trust. Description: A Florida Marital Deduction Trust, sometimes referred to as a Spousal Trust or Trust A, is an essential estate planning tool for married couples in Florida. This trust is designed to minimize estate taxes upon the death of the first spouse, ensuring maximum benefits for the surviving spouse while preserving assets for future generations. The primary purpose of Trust A is to utilize the Marital Deduction, a provision in the tax code that allows for the unlimited transfer of assets from one spouse to another without incurring federal estate tax. By creating an irrevocable Trust A, the first spouse to pass away can transfer assets, including property, investments, and cash, to the trust for the benefit of the surviving spouse. What sets Trust A apart from other marital trusts is that it allows the surviving spouse to receive income generated by the trust assets while retaining principal for the future beneficiaries, typically children or other heirs. This unique feature ensures the surviving spouse is financially supported while preserving wealth for the next generation. On the other hand, the Bypass Trust, also known as Trust B or the Credit Shelter Trust, complements Trust A in comprehensive estate planning. While Trust A aims to provide ongoing financial support to the surviving spouse, the Bypass Trust focuses on minimizing estate taxes by utilizing the unified estate and gift tax exemption. The Bypass Trust is an irrevocable trust created by the first spouse's will, which benefits the surviving spouse and other beneficiaries, such as children or grandchildren. Its primary purpose is to shelter assets equal to the available estate tax exemption from federal estate taxes upon the surviving spouse's death. By doing so, this trust ensures that the exemption amount is fully utilized, ultimately reducing the overall estate tax liability of the married couple's estate. Different variations of the Florida Marital Deduction Trust may exist based on individual needs, estate sizes, and tax planning goals. Some couples may choose a Qualified Terminable Interest Property (TIP) trust, which provides for the surviving spouse while maintaining control over the ultimate disposition of the assets. In conclusion, the Florida Marital Deduction Trust, specifically Trust A and Bypass Trust B, serve as crucial components in estate planning for married couples. These irrevocable trusts allow for the optimal utilization of the Marital Deduction, preservation of the estate's assets, and reduction of estate tax liabilities. Consulting with an experienced estate planning attorney is paramount to tailor these trusts to one's unique circumstances and goals.
