What is an AB Trust & How Does it Work?

Estate planning involves many possibilities, and one option is called an AB trust. This trust helps reduce estate tax but also restricts the way one can use the property in the trust. There are upsides and downsides when using this fund, so here is what you need to know about AB trusts.

What is an AB trust?

Spouses put their assets in this trust to avoid the taxes beneficiaries would be subject to with a will. The surviving spouse can still use the property in the trust, but the assets belong to the trust and not the spouse.

Who needs an AB trust?

To figure out what is best for you and your family, you might want to consult an estate planning attorney in St. Louis who can learn about your specific situation and recommend the appropriate estate planning actions. In general, married couples who are 60 or older might wish to consider an AB trust. If there is an age disparity, this might not be a good fit as the surviving spouse would have to abide by the trust terms for the rest of his or her life.  This trust may also work best when neither spouse has children from previous relationships so that conflicts don’t arise about who is entitled to assets.

How does it work?

A couple establishes a trust. When one spouse dies, the trust is split into an A trust and B trust. Since the deceased spouse’s share of the estate moves to the trust when this person dies, it’s exempt from estate tax when the surviving spouse passes because it didn’t belong to this spouse.  This allows beneficiaries to get more assets without tax burdens.

Contact us today for more estate planning information, and remember to check out the second part of this blog post about AB trusts.