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.
Washington Marital Deduction Trust, also known as Trust A, is a type of trust established in Washington state to utilize the marital deduction tax benefits. This trust is commonly used to minimize estate taxes upon the death of the first spouse. The main purpose of a Washington Marital Deduction Trust is to provide financial security for the surviving spouse while maximizing the estate tax benefits. By placing assets into Trust A, the decedent's estate can take advantage of the unlimited marital deduction, which allows the transfer of assets to the surviving spouse without incurring estate taxes. This ensures that the surviving spouse has control and access to the trust assets during their lifetime. Trust A is typically structured as an irrevocable trust, meaning that once assets are transferred into the trust, they cannot be directly accessed or controlled by the decedent or the surviving spouse. Instead, a trustee is appointed to manage and distribute the trust assets according to the terms outlined in the trust document. This arrangement provides both protection and flexibility in managing the trust assets. Bypass Trust, also known as Trust B or the family trust, is another type of trust commonly used in conjunction with the Washington Marital Deduction Trust. This trust is designed to maximize the overall estate tax savings by preserving the decedent's federal estate tax exemption. It allows a certain amount of assets, up to the federal estate tax exemption limit, to be transferred to Trust B upon the death of the first spouse. The assets held in Trust B are not included in the surviving spouse's estate, thereby reducing the potential tax burden upon their death. The surviving spouse may still have access to income generated by Trust B during their lifetime, but the principal typically remains untouched and is ultimately distributed to other beneficiaries upon the surviving spouse's death. It's important to note that there can be variations and customization of Washington Marital Deduction Trusts and Bypass Trusts based on individual circumstances and estate planning goals. These variations may include different distribution provisions, trustee appointment, or specific provisions tailored to the beneficiaries' needs. In summary, Washington Marital Deduction Trust — Trust A and Bypass Trust B are estate planning tools utilized in Washington state to minimize estate taxes while providing financial security for surviving spouses. Properly setting up these trusts can offer significant tax benefits and ensure the efficient distribution of assets in accordance with the decedent's wishes.
