Are AB trusts still needed?

Are AB trusts still needed?

Are AB Trusts Obsolete? AB Trusts are not entirely obsolete, though they are much less useful than they once were because of changes in estate law over time.

How do you split an AB trust?

Dividing the Trust This division is accomplished by assessing the fair market value of all of the trust’s assets as of the date of death. After doing so, the trustee can then decide which assets, and the value of the each of those assets, will be placed into Trust A and Trust B, respectively.

Can AB trust be changed by surviving spouse?

The AB trust is irrevocable. Once one spouse dies, there cannot be any changes made to the trust. This can create some issues and has even caused friction between the surviving spouse and the named beneficiaries of the trust. These changes may even encourage you to change or even revoke your trust.

What happens to a joint revocable trust when one spouse dies?

When one of the spouses dies, the trust will then split into two trusts automatically. Each trust will have half the assets of the trust along with the separate property of the spouse. The surviving spouse is the trustee over both trusts.

What is the advantage of an AB trust?

An A-B trust minimizes estate taxes by splitting the estate into a survivor portion and a bypass portion. The surviving spouse has limited control over the decedent’s trust but the terms of the decedent’s trust can be set to allow the surviving spouse to access the property and even draw income.

What is better than an AB trust?

For most families, a simple probate-avoidance trust is better than the much more complex AB trust. A simple revocable trust is, basically, a substitute for a will. It isn’t designed to continue past the death of a spouse; instead, the trust assets are quickly distributed to the people who inherit them.

How are AB Trusts funded?

An AB trust is a joint trust commonly created by a married couple to minimize estate taxes prior to the considerable increase in federal estate tax exemption. This trust is funded with assets of each spouse and divides into two separate trusts (Trust A and Trust B) upon the death of the first spouse.

Who are the beneficiaries of a bypass trust?

The assets in the Bypass Trust do not go to the children right away, but are held and used to support the surviving spouse. Once the surviving spouse dies, the assets in the Bypass Trust go to the ultimate beneficiaries (which are usually the children of the first spouse to die).

Can a trustee remove a beneficiary from a trust?

In most cases, a trustee cannot remove a beneficiary from a trust. However, if the trustee is given a power of appointment by the creators of the trust, then the trustee will have the discretion given to them to make some changes, or any changes, pursuant to the terms of the power of appointment.

Is there a step up in basis when a spouse dies?

Step-up in basis has a special application for residents of community property states such as California. There is what we call the double step-up in basis that may apply to your situation. When one spouse dies, the surviving spouse receives a step-up in cost basis on the asset.

How does an AB trust work in Massachusetts?

An AB trust, also called a credit shelter trust, is designed to minimize estate taxes for married couples by splitting into two trusts upon the first spouse’s death. Here’s an example where an AB trust helps a Massachusetts couple save $78,000 on estate tax.

What is the difference between an AB trust and a disclaimer trust?

the “A” refers to the first spouse to pass, and the “B” refers to the surviving spouse. A “disclaimer trust” differs from the “A-B” trust in an important manner: the disposition and protection of the assets of the married couple after the passing of the first spouse.