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David Miller, MS, CFP®, CRPC®
Financial Advisor
CA Insurance Lic. #0G61348
Prudential Advisors
1706 Plum Lane, Suite 128
Redlands, CA 92374
Phone: 909-709-9978
Email: david.miller@prudential.com
May/June 2023
Do You Need a Trust?
While trusts are often complex, they offer high net worth families and individuals tax advantages and more control over how their assets are distributed to future generations. One of the more common and effective trusts used to accomplish these twin goals is an AB trust, which is also known as a credit shelter or bypass trust. This type of trust begins as a revocable trust, when you can make changes, and ends as an irrevocable trust.
When families and individuals want to retain some control over how their assets are distributed after they’re gone while limiting the corrosive effect of estate taxes, any one of a variety of irrevocable trusts can accomplish this. Irrevocable trusts also shield assets named in these trusts from the public glare of probate court, while dictating how your estate will provide for family going forward.
AN AB TRUST IS A DUAL-PURPOSE VEHICLE THAT CAN ALLOW YOU TO PROVIDE INCOME TO A SURVIVING SPOUSE WHILE EVENTUALLY PASSING ON TAX-ADVANTAGED ASSETS TO BENEFICIARIES.
Multiple Advantages
How does this trust work? Part A of the trust provides income to the surviving spouse. When the second spouse dies, Part B kicks in for the benefit of the second spouse’s estate and becomes irrevocable.By dividing asset ownership among both spouses, the trust ensures the couple receives the maximum federal estate tax exemption, or credit, which in 2023 is $12.92 million per individual. This is key because a couple can lose part of one spouse’s exemption if they haven’t used it all.
While the estate can allow the surviving spouse to use the deceased spouse’s remaining exemption, it has some limits. The AB trust provides more control, but it doesn’t apply to the GST tax exemption and isn’t recognized by some states.
An AB Trust can offer control, maximize tax credits and help ensure that assets pass to beneficiaries as intended.
If you want to leave financial means to a spouse after your death while also ensuring other beneficiaries ultimately receive the remainder of tax-advantaged assets, the AB trust is one way to achieve this.
Consult an estate planning attorney and your tax and financial professionals to learn if this type of trust is appropriate for your situation.
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