AB Trusts

Definition: AB Trusts are used by married couples to maximize their use of the federal estate tax exemptions of both spouses. When the first spouse dies, that spouse's Revocable Living Trust or Last Will and Testament provides that their assets will be divided so that the amount then exempt from federal estate taxes will be placed into a subtrust, referred to as Trust B, and anything over the exemption will be placed into another subtrust, referred to as Trust A.

While "portability of the federal estate tax exemption" between married couples has led some to believe AB Trust planning is no longer necessary, there are many circumstances where this type of planning may still be required, such as in second marriages or where there is a large age difference between spouses. In addition, since none of the states that collect a state estate tax have adopted portability of the estate tax exemption at the state level, couples who live a state that collect a state estate tax still need to use AB Trust planning to minimize state estate taxes and may be able to use ABC Trust planning to defer payment of all estate taxes (federal and state) until after the death of the second spouse to die.

Trust A is also commonly referred to as the Marital Trust, Marital Deduction Trust, or QTIP Trust.

Trust B is also commonly referred to as the Bypass Trust, Credit Shelter Trust, or Family Trust.

Other Terms Beginning With A

Also Known As: A Trust = Marital Trust, Marital Deduction Trust, QTIP Trust; B Trust = Bypass Trust, Credit Shelter Trust, Family Trust