Broker Check

A-B Trust Structure and Estate Tax Savings

June 22, 2019

While the Tax Cuts and Jobs Act of 2017 impacted everyone when filing tax returns last April, it also opened the door to make changes to people's estate plans. One current issue potentially impacting people are those with Trusts that include the A-B structure for surviving spouses. 

I spoke about this issue with Amy Ciftcikara, Attorney at Law with Fenelli Law Firm, whom I collaborate with to help some of my clients.  Her insight is provided below.

Is the A-B Trust Structure Needed for Estate Tax Savings?

When planning for a client's legacy, it is imperative to take a look at a client's assets, familial situation, and wishes concerning distribution to heirs.  An Estate Planning tool that was commonly used between the years 2001 and 2009 for married couples for the purpose of estate tax savings was the incorporation of the A-B Trust structure (The B Trust is commonly called a Bypass Trust, Residual Trust, Family Trust, etc.).  The Federal Estate Tax Exemption amount in 2001 was $675,000 per person and increased incrementally to $3.5 million per person in 2009.  This strategy was used for couples whose combined estate exceeded the Federal Estate Tax Exemption amount at the time the first spouse passes away.  By using the A-B Trust structure, the assets in the B Trust were sheltered from Federal Estate Tax upon the surviving spouse passing away, thereby passing down assets to heirs without the payment of any Federal Estate Taxes from the B Trust.  

The current 2019 Federal Estate Tax Exemption is $11.4 million per person.  The exemption will incrementally increase with a sunset provision scheduled for the year 2026.  Most clients who incorporated the A-B Trust structure during the period between 2001 and 2009 may not necessarily require this structure if the terms were incorporated for tax savings purposes.  In addition to the increased exemption amount, a surviving spouse has the ability to elect portability on the deceased spouse's unused exemption.  Therefore, the tax savings result that was intended with the A-B Trust may be the same with the current laws in effect today without the use of the A-B Trust structure.  It is highly recommended that you meet with your Estate Planning attorney to review the laws in place, your current assets, and your familial situation.