Definition and Example of AB Trust
How AB Trust Works
AB Trust vs. Revocable Living Trust
Advantages and Disadvantages of AB Trust
How to Obtain an AB Trust
Definition and Example of AB Trust
The AB Trust helps wealthy married couples protect their wealth through an irrevocable bypass trust. When one spouse dies, the account is split into two separate trusts: a trust for the surviving spouse and an irrevocable trust for the beneficiaries.
How AB Trust Works
An AB Trust is suitable only for couples whose assets exceed the estate tax exemption. In 2022, the estate tax exemption is $12.06 million per individual. For married couples, this means they can pass up to $24.12 million to their heirs without incurring federal estate taxes.
AB Trust vs. Revocable Living Trust
Because of the high estate tax exemption limits, many individuals may prefer a revocable living trust instead of an AB Trust. This tool allows an individual to designate specific beneficiaries for different assets. So, if you do not want all your assets to pass to your spouse or if you are already a surviving spouse, you can make clear decisions regarding estate planning using a more flexible trust. And because it is revocable, it can be changed throughout a person’s lifetime.
Advantages and Disadvantages of AB Trust
Advantages:
- Can reduce estate taxes
- Avoid probate
- Pass assets to beneficiaries
Disadvantages:
- Often may be unnecessary
- Complex trusts for estate planning can be costly
How to Obtain an AB Trust
You will need a professional estate planning attorney to create an AB Trust. A trustworthy attorney can help ensure that the language and terms of the trust comply with IRS requirements and respect the wishes of both spouses.
Source: https://www.thebalancemoney.com/what-is-an-ab-trust-3505380
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