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.
A Tennessee Marital Deduction Trust, also known as Trust A, is a type of trust that allows married couples to maximize their estate tax exemptions by taking advantage of the marital deduction. This trust is established by one spouse for the benefit of the other spouse upon their death. The main purpose of the Tennessee Marital Deduction Trust is to ensure that the surviving spouse has enough financial resources to maintain their standard of living while minimizing estate taxes upon their passing. The assets transferred to this trust are not subject to estate taxes, as they qualify for the unlimited marital deduction. Trust A is irrevocable, meaning that once it is established, it cannot be modified or revoked by the granter. The surviving spouse can receive income from the trust for their lifetime, and the trust assets are then distributed to the named beneficiaries, typically the children, upon their death. The Bypass Trust, also known as Trust B or the family trust, is often created alongside Trust A as part of a comprehensive estate plan. It is designed to maximize estate tax savings by utilizing both spouses' exemptions. In a typical scenario, upon the first spouse's death, a portion of their assets, equal to the available estate tax exemption, is transferred into the Bypass Trust. This allows those assets to be excluded from the surviving spouse's estate, ultimately reducing the overall estate tax liability. The Bypass Trust can provide income to the surviving spouse and may also provide access to principal as needed, depending on the terms set forth in the trust document. Upon the death of the surviving spouse, the remaining trust assets are distributed to the named beneficiaries, often the children or other family members. Different types of Tennessee Marital Deduction Trusts can include Qualified Terminable Interest Property (TIP) trusts, which are commonly used when there are children from a previous marriage. A TIP trust allows the surviving spouse to receive income from the trust while ensuring that the assets ultimately pass to the children from the previous marriage. In summary, a Tennessee Marital Deduction Trust — Trust A and Bypass Trust B are essential estate planning tools for married couples seeking to minimize estate taxes. By establishing both trusts and leveraging the unlimited marital deduction and individual exemptions, couples can protect their assets and provide for their loved ones, while reducing the potential burden of estate taxes.
