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.
Rhode Island Marital Deduction Trusts — Trust A and Bypass Trust B are legal mechanisms commonly used in estate planning to help minimize estate taxes upon the death of a married individual. These trusts allow the transfer of assets between spouses while taking advantage of the Marital Deduction provision in the tax code. Trust A, also known as the Rhode Island Marital Deduction Trust — Trust A, is typically established upon the death of the first spouse. It allows for the creation of a separate trust for the surviving spouse, with the intention of avoiding estate taxes on the assets transferred to the trust. The surviving spouse can receive income from the trust and, in some cases, have access to the trust principal for their needs. Upon the death of the surviving spouse, the remaining assets in Trust A may be subject to estate taxes. Bypass Trust B, also known as the Rhode Island Marital Deduction Bypass Trust — Trust B or the Credit Shelter Trust, works in conjunction with Trust A. This trust is funded with assets up to the applicable estate tax exemption limit upon the death of the first spouse. The purpose of Trust B is to "bypass" the surviving spouse's estate and take full advantage of the deceased spouse's estate tax exemption. This allows for the preservation of the estate tax exemption of the first spouse, thus minimizing estate taxes upon the death of the surviving spouse. The surviving spouse can receive income from Trust B and may also have access to the trust principal for specific needs, but the assets held in Trust B are not included in their taxable estate upon their death. There are a few variations of these trusts in Rhode Island estate planning, including the TIP Trust (Qualified Terminable Interest Property Trust), which allows the surviving spouse to receive income from the trust while preventing estate tax inclusion until their death. Another option is the A-B Trust, also known as the ABC Trust, where assets are divided into Trust A and Trust B upon the first spouse's death, similar to Trust A and Trust B bypass trusts. Implementing Rhode Island Marital Deduction Trusts — Trust A and Bypass Trust B as part of an estate plan can provide significant tax advantages for married couples. However, it is important to consult with an experienced estate planning attorney or financial advisor to determine the most suitable approach based on individual circumstances and the ever-changing estate tax laws.
