In the world of estate planning, citizens have a lot to plan for to ensure a beneficial outcome for their loved ones and their assets when they pass on. While nobody likes to think about their own mortality, planning for it can provide you with security and comfort into retirement and beyond. If you’re married, it helps to understand a few of the intricacies of estate law to give you the most power to take control over your estate and manage it to meet your unique goals. Our Bethesda estate planning attorneys specialize in creating personalized solutions for each one of our clients. If you’ve been looking for an experienced and trusted estate lawyer in Maryland or DC, the experts at JDKatz are here to help. Our law firm relies on a diverse team of experts to provide services dealing with business structuring, family law, criminal litigation, and more.
Dealing with trusts, wills, and estates can be very complex, making it beneficial to speak with a professional for assistance. There are many strategies available to spouses looking to minimize their tax liabilities. Today, we’ll overview the basics of what an A-B trust is and how it may prove beneficial for your estate. If you need assistance in planning for the continuation of your assets, be sure to reach out our estate attorneys for help!
What is an A-B Trust?
To start, this trust is typically created with the sole intention of minimizing a couple’s estate taxes. You and your significant other can form this strategy by placing assets into a trust and naming a beneficiary beyond the surviving spouse that can receive the assets available. Many families rely on this approach, also known as the bypass trust, to avoid losing a large part of the estate to taxes when the surviving spouse passes on. Keep in mind that spouses have an unlimited marital deduction that allows for the unlimited transference of assets to the surviving spouse without incurring any taxes or using up their lifetime deduction limit.
If you receive $4 million as an inheritance from your spouse, that amount is untouched by taxation and is completely yours. However, if you were to soon pass away, that same amount would pass onto your beneficiaries, which may exceed the exclusion limit, incurring a 40-percent tax. If your beneficiaries were expecting three million dollars, they will now need to adjust their inheritances based on the less-than $2 million remaining.
How Does a Bypass Trust Work?
In order to avoid this costly scenario, spouses can enact an A-B trust under their last wills and testaments. Basically, if one spouse dies, the amount of money equal to the tax exemption for the survivor is placed into the B trust. This trust is also known as the decedent’s trust. The remaining amount will be placed into the A trust, which the surviving spouse has full control of. As part of the regulations, any estate taxes on the survivor’s trust will be put off until after their death.
A-B trusts are helpful because the surviving spouse can live on the property and utilize assets placed in the A trust while placing a predetermined amount into the secondary trust. Surviving spouses can access the B trust, but it is complicated and comes with a lot of restrictions. You can plan on setting a certain amount for your spouse to live on, providing for your kids, paying the bills, and so on. Clients are often relieved after going through this process, as A-B trusts can help you to establish how inheritances will be handled. If your spouse decides to remarry, you can work to set conditions to keep your biological children’s future assets secured. Once the surviving spouse passes away, only the property in the A trust will be subject to estate taxes and exemptions.
Avoiding Double Taxation
If your estate faces taxes over a certain amount, it can prove very beneficial to place a strategic amount into a B-trust to minimize tax obligations and maximize the assets available for your beneficiaries. When assets are placed into this B trust, the exemption limit of the spouse that passed away is used first, reducing future taxes while avoiding being taxed twice for the same assets.
Double taxation is the process of paying twice on the same source of income or property. A lot of debate has raged over estate taxes and their true value. If you’re looking for assistance in minimizing your taxes while creating the best outcome for your spouse and beneficiaries, it pays to find qualified estate planning attorneys for assistance. Our estate lawyers help Maryland clients find the best avenue for their goals. It’s never too early or too late to begin planning for the continuation of your estate. We can help to create a cost-effective approach that benefits all of your loved ones. Contact us today to learn more!
