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.
North Dakota Marital Deduction Trust (Trust A) and Bypass Trust (Trust B) are two types of irrevocable trusts commonly used for estate planning in North Dakota. These trusts are designed to provide certain tax advantages and asset protection for married couples. Trust A, also known as the North Dakota Marital Deduction Trust, is created to take advantage of the unlimited marital deduction. This deduction allows assets to be transferred between spouses without incurring federal estate or gift taxes. Trust A is funded with the assets of the deceased spouse and provides income to the surviving spouse, who is the primary beneficiary. Upon the death of the surviving spouse, the remaining trust assets pass on to the designated beneficiaries named in the trust document. Trust A ensures that the assets qualify for the marital deduction, reducing the overall estate tax liability upon the surviving spouse's death. Bypass Trust, also known as Trust B or the North Dakota Credit Shelter Trust, is created to maximize the federal estate tax exemption. This trust is funded with an amount up to the estate tax exemption limit (currently $11.7 million in 2021). Upon the death of the first spouse, the assets equal to the exemption limit are transferred to Trust B. The surviving spouse may receive income or use of the assets in Trust B, but these assets are not considered part of their taxable estate. By utilizing Trust B, the couple can effectively pass on a larger portion of their estate to their heirs while minimizing estate taxes. Both Trust A and Trust B offer benefits such as asset protection, avoiding probate, and maintaining control over the distribution of assets. Additionally, these trusts can provide for the surviving spouse's needs during their lifetime while securing assets for future generations. In summary, the North Dakota Marital Deduction Trust (Trust A) and the Bypass Trust (Trust B) are two commonly used trust structures in North Dakota estate planning. Trust A utilizes the unlimited marital deduction to minimize estate taxes, while Trust B maximizes the federal estate tax exemption. These trusts play a crucial role in preserving wealth and providing for loved ones' financial security for married couples in North Dakota.
