An AB trust is a trust created by a married couple to avoid probate and minimize federal estate tax. An AB trust is created by each spouse placing property into a trust and naming someone other than his or her spouse as the final beneficiary of that trust. Upon the death of the first spouse, the surviving spouse does not own the assets in that spouse's trust outright, but has a limited power over the assets in accordance with the terms of the trust. Such powers may include the right to receive interest or income earned by the trust, to use the trust property during his or her lifetime, e.g. to live in a house, and/or to use the trust principal for his or her health, education, or support. Upon the death of the second spouse, the trust passes to the final beneficiary of the trust. For estate tax purposes, the trust is included in the first, but not the second, spouse's estate and therefore, avoids double taxation.
A Raleigh North Carolina Marital Deduction Trust, also known as Trust A, is a legal tool utilized in estate planning to take advantage of the marital deduction provided for by the Internal Revenue Code. This trust is created by an individual in Raleigh, North Carolina, to provide financial protection and benefits for their surviving spouse after their death. By establishing this trust, the granter can minimize estate taxes and ensure that their spouse is provided for. The Marital Deduction Trust A work by allowing the granter to transfer assets into the trust, while still allowing their surviving spouse to enjoy the income generated by those assets during their lifetime. The spouse may also have access to the principal if needed for their support and maintenance. The trust provides various tax advantages, as the assets transferred into the trust are exempt from estate taxes upon the granter's death. In the case of a Raleigh North Carolina Marital Deduction Trust, there is also a Bypass Trust B, commonly referred to as a Credit Shelter Trust or Exemption Trust. This trust is set up alongside Trust A to maximize the utilization of the granter's federal estate tax exemption. By utilizing this type of trust, the granter can shelter a significant amount of their estate from estate taxes upon both their and their spouse's passing. The Bypass Trust B allows the granter to allocate assets to the trust, up to the amount of their available federal estate tax exemption. These assets, along with any growth or income generated, are excluded from the granter's taxable estate, resulting in potential tax savings for their beneficiaries. Upon the surviving spouse's death, the assets in the Bypass Trust B can pass to the designated beneficiaries, such as children or other family members, without being subject to estate taxes. In summary, a Raleigh North Carolina Marital Deduction Trust includes both Trust A and Bypass Trust B. Trust A focuses on providing financial security for the surviving spouse while taking advantage of the marital deduction, and Trust B (Bypass Trust) aims to maximize the available federal estate tax exemption. These trusts are essential components of comprehensive estate planning in Raleigh, North Carolina, helping individuals protect their assets and minimize tax implications for their loved ones.
