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.
Puerto Rico Marital Deduction Trusts, also known as Trust A and Bypass Trust B, are estate planning tools used in Puerto Rico to manage assets and provide financial protection for spouses after one of them passes away. These trusts are designed to take advantage of the Puerto Rico tax laws and provide significant tax benefits for married couples. Trust A, the Marital Deduction Trust, is created upon the death of the first spouse. It allows the deceased spouse's assets to pass into the trust, with the surviving spouse named as the primary beneficiary. The surviving spouse can receive income or use the assets of the trust during their lifetime while maintaining control over it. One of the primary benefits of Trust A is that it defers any estate tax until the death of the surviving spouse, and the assets of the trust are eligible for the unlimited marital deduction, which means that they will not be subject to any federal estate taxes. Bypass Trust B, on the other hand, is a trust that is also established upon the death of the first spouse. It is designed to shelter a portion of the deceased spouse's assets from being included in the surviving spouse's estate, thereby maximizing the use of the federal estate tax exemption. This trust allows the surviving spouse and other named beneficiaries, such as children or grandchildren, to receive income or use the trust assets during their lifetime. Upon the death of the surviving spouse, the assets remaining in the Bypass Trust B will pass to the named beneficiaries without being subject to any additional estate taxes. There are different types of Puerto Rico Marital Deduction Trusts, which may include: 1. General Power of Appointment Trust: This type of trust allows the surviving spouse to have broad control over the trust assets and the ability to distribute them to themselves or others. It ensures flexibility and control while still providing the desired tax benefits. 2. Qualified Terminable Interest Property Trust (TIP): This trust is commonly used when one or both spouses have children from previous marriages. It allows the deceased spouse to provide for the surviving spouse while also ensuring that the assets eventually pass to their children. 3. Irrevocable Life Insurance Trust (IIT): This trust focuses on providing liquidity to pay estate taxes upon the death of the insured spouse, allowing the surviving spouse to maintain financial stability without having to sell off assets. 4. Charitable Remainder Trust (CRT): This type of trust allows individuals to support charitable causes during their lifetime while still providing for their surviving spouse. The surviving spouse receives income from the trust, and upon their death, the remaining assets go to the designated charity. In summary, Puerto Rico Marital Deduction Trusts (Trust A and Bypass Trust B) are crucial estate planning tools utilized in Puerto Rico to protect assets, minimize estate taxes, and ensure financial stability for surviving spouses. These trusts offer various options and types, such as General Power of Appointment Trusts, TIP Trusts, Slits, and CRTs, each tailored to specific needs and objectives. Consulting with an experienced estate planning attorney is recommended to understand the intricacies and benefits of these trusts further.
