Jacksonville Tax Attorney Explains Tax-Saving Benefits of an AB Trust
The federal estate tax has gained lots of attention in 2010 because it ceased to exist...at least until Congress reinstates it, which many believe will be the case.
For Florida residents with sizeable estates – in 2009, the estate tax threshold was $3.5 million – adding an AB provision to a living trust can provide substantial tax savings. An AB trust ensures that both spouses can take advantage of the government’s “unified credit” – a credit that allows you to exempt $1 million during your lifetime to reduce or eliminate gift taxes or reduce estate taxes.
By establishing an AB trust, each spouse can take advantage of the unified credit – once when the first spouse dies, and again at the death of the second spouse.
When the first spouse dies, an AB trust creates two separate trusts. The assets of the survivor are transferred to the A trust, and an amount up to the exemption limit of the deceased spouse’s assets goes to the B trust. Each trust is taxable, and each can use the exemption.
The B trust is subject to estate taxes, but because of the unified credit, no taxes are owed. The surviving spouse receives income from the B trust while maintaining control over the A trust. Upon the death of the second spouse, the benefits from the B trust go to the spouses’ beneficiaries, usually the children. Only the A trust is subject to estate taxes, since the B trust was taxed at the death of the first spouse.
Sound complicated? It can be, which is why you should consult a Florida estate and tax planning attorney if you have a large estate and want to learn more about the benefits of establishing an AB trust.
