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 Texas Marital Deduction Trust, also known as Trust A, and a Bypass Trust, also known as Trust B, are two types of trust structures commonly used in estate planning. These trusts enable married couples in Texas to maximize the benefits of estate tax planning while providing for the financial security of the surviving spouse. 1. Texas Marital Deduction Trust — Trust A: Trust A, or the Texas Marital Deduction Trust, is designed to take advantage of the unlimited marital deduction, a provision in the federal estate tax law that allows for an unlimited transfer of assets from one spouse to another without incurring estate taxes at the time of the first spouse's death. The surviving spouse becomes the primary beneficiary of this trust and is entitled to receive income distributions from the trust during their lifetime. The primary purpose of Trust A is to provide financial support to the surviving spouse while preserving the assets for the ultimate benefit of other beneficiaries, such as children or grandchildren. This trust structure allows the surviving spouse to access and utilize the trust assets for their needs while still keeping the assets within the family and reducing potential estate tax liability upon their subsequent passing. 2. Bypass Trust — Trust B: The Bypass Trust, also known as a credit shelter trust or family trust, works in conjunction with the Texas Marital Deduction Trust to optimize estate planning benefits for the married couple. Trust B is created upon the first spouse's death to hold and protect a portion of their assets that equalizes the use of their federal estate tax exemption. The assets transferred to Trust B are excluded from the surviving spouse's taxable estate, which means they are not subject to estate taxes upon the surviving spouse's passing. Instead, these assets will pass to the other named beneficiaries, typically the couple's children or descendants, without incurring additional estate taxes. By utilizing a Bypass Trust, the married couple can effectively make use of both spouses' estate tax exemptions, potentially shielding a significant portion of their combined wealth from estate taxation. This allows for the preservation and transfer of wealth to future generations while reducing estate tax exposure. In conclusion, a Texas Marital Deduction Trust, or Trust A, and a Bypass Trust, or Trust B, are two types of trusts that work together to optimize estate planning benefits for married couples in Texas. Trust A provides financial security for the surviving spouse while preserving assets for other beneficiaries, while Trust B minimizes estate tax liability by utilizing the federal estate tax exemption. These trust structures, when used properly, allow married couples to protect and transfer wealth to future generations in the most tax-efficient manner.A Texas Marital Deduction Trust, also known as Trust A, and a Bypass Trust, also known as Trust B, are two types of trust structures commonly used in estate planning. These trusts enable married couples in Texas to maximize the benefits of estate tax planning while providing for the financial security of the surviving spouse. 1. Texas Marital Deduction Trust — Trust A: Trust A, or the Texas Marital Deduction Trust, is designed to take advantage of the unlimited marital deduction, a provision in the federal estate tax law that allows for an unlimited transfer of assets from one spouse to another without incurring estate taxes at the time of the first spouse's death. The surviving spouse becomes the primary beneficiary of this trust and is entitled to receive income distributions from the trust during their lifetime. The primary purpose of Trust A is to provide financial support to the surviving spouse while preserving the assets for the ultimate benefit of other beneficiaries, such as children or grandchildren. This trust structure allows the surviving spouse to access and utilize the trust assets for their needs while still keeping the assets within the family and reducing potential estate tax liability upon their subsequent passing. 2. Bypass Trust — Trust B: The Bypass Trust, also known as a credit shelter trust or family trust, works in conjunction with the Texas Marital Deduction Trust to optimize estate planning benefits for the married couple. Trust B is created upon the first spouse's death to hold and protect a portion of their assets that equalizes the use of their federal estate tax exemption. The assets transferred to Trust B are excluded from the surviving spouse's taxable estate, which means they are not subject to estate taxes upon the surviving spouse's passing. Instead, these assets will pass to the other named beneficiaries, typically the couple's children or descendants, without incurring additional estate taxes. By utilizing a Bypass Trust, the married couple can effectively make use of both spouses' estate tax exemptions, potentially shielding a significant portion of their combined wealth from estate taxation. This allows for the preservation and transfer of wealth to future generations while reducing estate tax exposure. In conclusion, a Texas Marital Deduction Trust, or Trust A, and a Bypass Trust, or Trust B, are two types of trusts that work together to optimize estate planning benefits for married couples in Texas. Trust A provides financial security for the surviving spouse while preserving assets for other beneficiaries, while Trust B minimizes estate tax liability by utilizing the federal estate tax exemption. These trust structures, when used properly, allow married couples to protect and transfer wealth to future generations in the most tax-efficient manner.
