The gold standard for estate planning has been the AB Trust. With the new estate tax provisions of the Tax Relief Act of 2010 now in effect, questions have arisen as to whether AB Trust planning is still necessary. The truth is, the AB Trust continues to be a great option because the it has so many uses that go beyond estate tax planning. For example, an AB Trust can be used to balance the needs of blended families, to protect the assets of a surviving spouse and children from creditors, and to shield assets in the event that a surviving spouse remarries and subsequently divorces.
Especially for blended families, the AB Trust can be a critical estate planning tool. At the death of the first spouse, his assets are split among the Family, or “B”, Trust, and the Survivor’s, or “A” Trust. The Family Trust is irrevocable, which in addition to offering estate tax advantages, also helps guarantee that the assets it holds will be preserved for the decedent’s children. The surviving spouse is entitled to the income from the trust, which provides for this surviving spouse’s support during his or her lifetime, while the decedent’s children have the security of knowing that the Family Trust assets are there for them. This eliminates concerns about a new step-parent getting all the money intended for the kids.
But what if your clients are a traditional family – a husband and wife in a long-term marriage, whose only children are products of that marriage? If this hypothetical couple has significant assets, but those assets won’t be taxable in 2011 or 2012 because of the exemptions allowed under TRA 2010, they might be hesitant to include an AB Trust in their estate plan at all. Often, clients don’t want to deal with the loss of control, or the perceived difficulty or hassle that may come with the requirement to set up the Family Trust – especially when the future of the estate tax is uncertain.
But, what if there were a way to retain the planning advantages of the Family Trust, while not hamstringing the surviving spouse? There is a way to do that, or at least to defer the decision until the first death. I’ll talk about that in my next blog.
Stephen C. Hartnett, J.D., LL.M.
Associate Director of Education
American Academy of Estate Planning Attorneys, Inc.
6050 Santo Rd., Ste. 240
San Diego, CA 92124