A-B Marital and A-Marital

Do you know the type of married trust created in your estate plan, and how it works?
As husband and wife, you created a Revocable Living Trust to protect your loved ones and protect your estate’s real property and financial assets from a Court Probate.  Another reason is to reduce or eliminate Federal Estate Tax liability concerns, upon both your deaths.  It is important to understand, while both of you are living, what happens when the first spouse dies and what powers you have as the surviving spouse. Here is a general overview:

• A-B Marital Trust (also known as Credit Shelter Trust or Bypass Trust)
  Total assets likely to exceed applicable credit amount during the Grantor's lives, thus preserves applicable credit amounts for each spouse. Currently for 2011-2012, you can pass up to $10 million (deceased spouse exemption being $5 million) if, after the death of the first spouse, a division of assets is completed and assets are funded to the A-Trust (Revocable) and B-Trust (Irrevocable).
  This A-B Trust is designed to provide maximum estate tax savings and to respect and protect the wishes of both spouses, such as a blended family.
• A-Marital Trust (with Disclaimer Provisions)
  Total assets usually (but not always) well under the current applicable credit amount (e.g. $5 million), with the surviving spouse choosing to;
  1) receive deceased spouse interest as an outright “marital gift” in trust, or,
  2) to “disclaim” an interest in the deceased spouse interest in the trust, thus to preserve the deceased spouses credit against estate taxes, possibly leaving more to the heirs.  Any amount “disclaimed” is further held and maintained in the B-Trust.

Don’t I “own” all the assets when my spouse dies? It depends on the provisions setforth in the trust:

• A-B Marital Trust– Upon the death or incapacity of either spouse, one-half of the trust becomes irrevocable and may evoke a notification to all beneficiaries.  The surviving spouse “shall” divide the estate as follows:
  • In regard to the “A” Trust (Survivors Trust), estate is tax-free up to the applicable credit amount (i.e. $5 million). Surviving spouse has no restrictions in any way, can amend or revoke the “A” Trust at anytime.
  • In regard to the “B” Trust (Decedents Trust), no estate taxes regardless of amount transferred (when division is completed). Surviving spouse can manage assets, receive all income, invade principal (with some limitations), but cannot amend or revoke at anytime. “B” Trust is Irrevocable.
• A-Marital Trust– Surviving Spouse has a choice to “disclaim”, or not:
  • NO Disclaimer filed, all assets in the trust are treated as if the deceased spouse made an unlimited marital gift to the surviving spouse; the entire trust estate is included in the estate of surviving spouse, thus retaining full and complete power to amend or revoke at anytime.
  • With Disclaimer filed, the trust is divided into “A” Trust and “B” Trust with limited rights to the surviving spouse (see A-B Marital Trust). There is a time-limit restriction in activating this option.

Can we request a restatement of our A-B Trust to an A-Marital while we’re both living? Yes you can.

Always consult your Estate Planning Attorney, and your Tax Advisor, before requesting a trust restatement.  An A-B Trust created for you ten years ago may no longer fit your estate plan today. There is a financial cost in a division of your estate and you will need to file with the IRS, Form 706. This cost may be prohibitive if  your estate value has diminished over the years. For more information, please contact us at AmeriEstate Legal Plan, at 877.624.9231