Estate Planning Fundamentals: Why AB Trusts Matter
Estate planning represents one of the most important steps you can take to protect your family’s future. While many people understand the basics of wills and simple trusts, specialized tools like AB Trusts often remain misunderstood despite their significant benefits. For married couples concerned about preserving assets for their children while providing for a surviving spouse, an AB Trust offers powerful advantages that deserve consideration.
What are AB Trusts and How Do They Work?
What is an AB trust? It’s a legal arrangement designed specifically for married couples that splits into two separate trusts when the first spouse passes away. The “A” trust (also called the marital or survivor’s trust) holds the surviving spouse’s assets, while the “B” trust (also called the bypass or decedent’s trust) contains the deceased spouse’s assets up to the estate tax exemption amount.
The surviving spouse typically maintains access to income generated by the B trust and, in some circumstances, can access the principal. However, the B trust becomes irrevocable after the first spouse’s death, meaning its terms cannot be changed. This structure ensures that the deceased spouse’s wishes regarding the ultimate distribution of assets are honored, even after many years have passed.
AB Trusts Explained: The Structure and Function
AB trust explained simply: it’s a mechanism that allows married couples to maximize their estate tax exemptions while ensuring their assets go to intended beneficiaries. When properly structured, these trusts can effectively double the amount a couple can pass to heirs free of estate taxes.
How AB Trusts Work:
A married couple establishes an AB Trust during their lifetime
Upon the first spouse’s death, the trust automatically splits into the A and B trusts
The B trust receives assets up to the federal estate tax exemption amount
The surviving spouse maintains control of their own assets in the A trust
When the surviving spouse passes away, both trusts’ assets transfer to the final beneficiaries
This arrangement proves particularly valuable for blended families or situations where spouses want to ensure specific assets reach heirs, regardless of what happens after the first spouse’s death.
AB Trust Example: How It Works in Practice
Consider this AB trust example: John and Mary create an AB trust with their $3 million estate. When John passes away, his $1.5 million goes into the B trust for their children from his first marriage, while Mary’s $1.5 million remains in her A trust. Mary receives income from the B trust during her lifetime but cannot change its beneficiaries. When Mary eventually passes away, her A trust assets go to her chosen heirs, while the B trust assets go to John’s children as he intended.
This arrangement protects both spouses’ wishes while potentially reducing estate taxes. Without this structure, if Mary remarried and combined assets with her new spouse, John’s children might receive significantly less than he intended.
When to Consider AB Trusts in Your Estate Plans
While AB trusts offer significant benefits, they aren’t necessary for everyone. You might consider including an AB trust in your estate plans if:
Your combined estate approaches or exceeds federal estate tax exemption limits
You have children from previous relationships
You want to ensure specific assets go to heirs
You seek protection against a surviving spouse potentially diverting assets
You want to provide for a surviving spouse while preserving principal for children
Residents of Glendora and Upland with substantial assets or blended families often find AB trusts particularly valuable for ensuring assets flow to intended heirs while minimizing tax burdens.
AB Trusts vs. Other Estate Planning Tools
Comprehensive estate plans often include various trusts tailored to specific family situations. While wills determine how assets are distributed, they work alongside trusts to create a complete estate plan. Understanding how AB trusts compare to other options helps you make informed decisions:
Revocable Living Trusts: Offer probate avoidance but limited tax benefits compared to AB trusts
QTIP Trusts: Provide for a surviving spouse while controlling ultimate distribution, but with different tax treatment
Standalone Wills: Simpler but lack the control and potential tax benefits of trusts
Joint Tenancy: Provides easy transfer to a surviving spouse but no control over ultimate distribution
Larger estates particularly benefit from the tax advantages that AB trusts can provide, especially when combined with other estate planning strategies.
Elder Law Considerations and Long-Term Care Planning
Elder law attorneys often recommend AB trusts as part of a comprehensive long-term care strategy. Planning for LTC needs becomes easier when your assets are properly protected in an AB trust. By establishing clear parameters for asset management and distribution, you create a framework that can adapt to changing health needs while preserving resources for both spouses.
The trust can include provisions that address potential incapacity and healthcare decisions, working in conjunction with other documents like advance healthcare directives and powers of attorney. This comprehensive approach ensures your wishes are honored throughout your lifetime and beyond.
Working with an Estate Planning Attorney
Creating effective estate plans requires professional guidance. An experienced estate planning attorney will:
Evaluate your specific family situation and assets
Explain how different trusts and tools might benefit your circumstances
Draft legally sound documents that accomplish your goals
Ensure proper execution and funding of your trusts
Provide guidance on maintaining your plan as laws and circumstances change
In Glendora and Upland, families seeking estate planning guidance benefit from working with attorneys who understand both the technical aspects of trusts and the human concerns that drive estate planning decisions.
AB trusts represent a sophisticated estate planning tool that offers significant benefits for many married couples. By understanding how these trusts work and when they might be appropriate, you take an important step toward creating an estate plan that truly protects your family’s future. Whether your primary concern is tax efficiency, asset protection, or ensuring your wishes are honored after you’re gone, exploring the potential benefits of an AB trust with a qualified estate planning attorney makes good sense.
Remember that estate planning isn’t a one-time event but an ongoing process that should evolve as your family circumstances, assets, and applicable laws change. By staying informed and working with knowledgeable professionals, you create the foundation for your family’s long-term financial security and peace of mind.
About Skvarna Law Firm in Glendora and Upland, California
Skvarna Law Firm operates offices in Glendora and Upland, California. We provide legal services. We cover San Bernardino, Los Angeles, Orange, and Riverside Counties. This includes several cities. Upland, Ontario, Rancho Cucamonga, Fontana, Colton, Rialto, Chino, Chino Hills, Glendora, Claremont, Pomona, La Verne, Montclair, San Dimas, Azusa, Covina, West Covina, Diamond Bar, Walnut, La Puente, Corona, Norco & Mira Loma. Visit SkvarnaLaw.com to learn more.
