Since the Bypass Trust is irrevocable, it cannot be changed, amended, or terminated by the surviving spouse. And while a Bypass Trust can allow income and principal distributions to the surviving spouse, they can be severely limited on what can be distributed depending on how the Trust is drafted.
How are AB Trusts funded?
An AB trust is a joint trust commonly created by a married couple to minimize estate taxes prior to the considerable increase in federal estate tax exemption. This trust is funded with assets of each spouse and divides into two separate trusts (Trust A and Trust B) upon the death of the first spouse.
How is an AB Trust used in estate planning?
Especially for blended families, the AB Trust can be a critical estate planning tool. At the death of the first spouse, their assets are split among the Family, or “B” Trust and the Survivor’s, or “A” Trust.
When does an AB or ABC Trust become irrevocable?
Since 1981, literally millions of American couples have created AB or ABC Trusts. Many of those Bypass Trusts have become irrevocable upon the first spouse’s death. The American Taxpayer Relief Act of 2012 eliminated the need for most couples to do an AB or ABC Trust, as Portability was introduced for the first time.
Can a trust be transferred to a survivor’s Trust?
The remaining amount, $2 million, will be transferred to a survivor’s trust, or A trust, which the surviving spouse will have complete control over. The estate tax on the A trust is deferred until after the death of the surviving spouse.
How to set up a survivor bypass trust?
The following steps will need to be taken to deploy this strategy: 1 Hire an estate planning attorney to draft the bypass trust. 2 Choose an individual or institution to be the trustee of the bypass trust. 3 Choose beneficiaries and remainder persons for the bypass trust.
