If you and your spouse set up an A-B trust in years past, you are not alone. Since our inception in 1998, many of our married clients have established such trusts with the help of AmeriEstate Legal Plan, Inc. If your spouse dies, however, you, as the surviving spouse, must take more-or-less immediate steps to “settle” this trust and give it new forms.
Let’s review A-B trusts in general before getting into the specifics of what you need to do as the surviving spouse.
A-B Trust Establishment
By definition, an A-B trust is a revocable living trust set up by a married couple for the purpose of maximizing their estate tax exemptions. The most important consideration here is that the Internal Revenue Service requires that these trusts contain specific wording to make them legal.
Each spouse places assets into the trust, which usually names both spouses as joint trustees. The ultimate beneficiaries are usually the couple’s children.
The couple manages the trust together until one of them dies. Then the surviving spouse takes over as sole trustee.
Splitting the Trust
As the surviving spouse and sole trustee, you now need to split the trust in two: Trust A, also called the survivor’s trust or marital trust, and Trust B, also called the decedent’s trust or bypass trust.
You do this by determining the fair market value of all the assets in the joint trust. Then you place a sufficient number of them into the newly created B Trust, up to the value of your spouse’s federal estate tax exemption, which for 2022 is $12.02 million. This trust immediately becomes irrevocable, with you as its sole trustee. The rest of the joint trust assets goes into the newly created A Trust, again with you as the sole trustee.
You must re-register all the assets you place into either trust to reflect your new ownership of them as trustee of the respective trusts. Ideally, all this should be done within six to nine months after your spouse’s death.
The B Trust
As trustee of the B Trust, you have limited control over it. For instance, you have the right to do the following:
- Continue living in the marital home
- Receive income generated by the trust
- Receive some trust principal, if necessary
- Manage the trust, including making investments, selling or purchasing assets, or any other reasonable management activity
Trust B must file an annual fiduciary income tax return, so you need to obtain a federal tax ID number.
The A Trust
The A Trust remains a revocable one, over which you have complete control during the remainder of your life. You can take as much income or principal from this trust as you wish, and can even cancel it if you so desire.
Trust A does not file any income tax returns, fiduciary or otherwise. This is because you will report any income or principal you take from Trust A on your personal income tax return in the year you take it.
Obtaining Trust Settlement and Administration Help
AmeriEstate Legal Plan, Inc. stands ready, willing and able to be your trusted expert resource when it comes to settling your original A-B trust after the death of your spouse, splitting it in two, and managing the resulting trusts thereafter. You may rest assured that we will be right there with you every step of the way. Contact us today.