What is an A-B trust?

If you are evaluating your estate planning options, you may choose between creating a will or a trust. If you believe that a trust may be beneficial for your situation, you will have further choices to make. You can develop a revocable trust or an irrevocable trust, for example. You may also be able to or wish to create what is called an A-B trust. This type of trust is best utilized for high-asset estates that have values exceeding a person’s tax exemption level.

According to the American Bar Association, an A-B trust is actually two separate trusts intended to be used in tandem and can be an effective way of providing for both a surviving spouse and for surviving children or grandchildren. Generally, you would establish one trust to provide for your spouse after you die. You would then also establish a second trust that could provide only for your children or for your children and your spouse. Grandchildren or others may also be accommodated in this secondary trust. As the name implies, the first trust is the A trust and the second trust is the B trust.

Your descendants would receive the full B trust in a tax-free transfer when your spouse eventually dies. Assets remaining in the A trust would be subject to estate taxation. You may also hear of an A trust referred to as a QTIP or marital trust. A B trust is sometimes called a family or credit shelter trust.

This information is not intended to provide legal advice but general information about A-B trusts and when they may be useful for residents in Florida.

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