Palm Desert Estate Planning Attorney Discusses the A/B Trust

We have previously discussed the importance of keeping your estate plan up-to-date. It’s a good rule of thumb to have an experienced estate planning attorney review your documents at least every five years. Out dated documents may have unnecessary provisions that can be very detrimental.

Recently, we are seeing a lot of clients who have an A/B split trust which may be unnecessary for their current situation. Back in the days of low estate tax exemption amounts, A/B Trusts were a convenient and effective way of reducing estate tax liability. However, the current estate tax exemption amount is $5,340,000 in 2014 and will rise to $5,430,000 in 2015. This means that you won’t pay a penny in estate taxes if your estate is less than the exemption amount.

Not so long ago, the estate tax exemption was only $1,500,000 (in 2005) so many trusts had A/B split provisions automatically placed in the document. This is great for reducing estate tax liability but can restrict the use of Trust funds for the Surviving Spouse. Under a trust with a A/B split, when the first spouse dies, 50% of the assets are transferred into a Decedent’s Trust (also called a Trust B) which usually cannot be amended or revoked by the Surviving Spouse. Also, the Surviving Spouse generally does not have access to principal and can only receive the income from the assets in this Trust. It can be difficult explaining to a Surviving Spouse that she doesn’t actually have use of all of the Trust funds when her spouse dies.

However, a benefit of the A/B split is that your Surviving Spouse cannot disinherit your beneficiaries. This is important especially in blended families where both spouses have children from prior marriages. Under the A/B split a Surviving Spouse cannot change the provisions of the Decedent’s Spouses’ Trust and therefore cannot disinherit step-children.

If your assets have changed significantly since your trust was initially created, or you no longer believe that an A/B split Trust is right for you contact an experienced estate planning attorney.

The attorneys at Burt + Clerc are happy to review your documents with you and help you determine what type of Trust is best for you and your family.

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