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Ask A CPA - Estate Planning

What Is An A-B Trust ?

Note that in 2013 the federal estate tax exemption has been made transferable between spouses. This is referred to as "portability of the estate tax exemption" and means that if one spouse dies in 2013 and his or her entire $5,250,000 estate tax exemption is not needed to avoid estate taxes on his or her estate, then the unused portion of the deceased spouse's estate tax exemption can be added to the surviving spouse's estate tax exemption. This, in essence, means that a married couple will be able to pass on up to $10,500,000 to their heirs free from federal estate taxes without the need to use AB Trust planning. But keep in mind that if the married couple have different sets of final beneficiaries, such as in the case of a second or later marriage where each spouse has their own children that they want inherit their separate assets after both spouses are deceased, then the couple will want to make use of AB Trust planning in order to insure that their separate beneficiaries will be their ultimate beneficiaries. An A-B Trust is a regular trust made during the lifetimes of a taxpayer and spouse. One of its characteristics is that upon the death of either a husband or wife, it splits into two separate trusts, an "A" trust and a "B" trust. By doing this, the trust takes advantage of the decedent's current year's exemption ($5,250,000) and the unlimited marital deduction. The surviving spouse becomes the trustee of both trusts and has access to the funds in both trusts. The purpose of the A-B trust is to eliminate all estate taxes upon the death of the first spouse. You will be able to use an A-B trust if you are married and have an estate tax. That means an estate in the year 2013 worth more than $5,250,000 Million. If you do have an estate worth more than $5,250,000 Million in 2013 an A-B trust can help you. Speak to your local CPA or attorney about this tax planning strategy.

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