Bay Area Estate And Tax Planning Law Firm

Learning about the survivor’s trust

On Behalf of | May 22, 2023 | Blog, Estate Planning, Trusts |

Married couples in California can minimize estate taxes and gain more control over future disbursements of their assets by setting up an AB trust. This legal arrangement is common when the married couple’s estate value exceeds the remaining estate tax exemption. The Survivor’s trust is the A-half of the AB trust and the B-half is the Bypass Trust. This revocable trust is just one of the living joint trusts designed to safeguard assets in the future.

Understanding the AB Trust

The survivor’s trust involves each spouse putting their assets in and naming beneficiaries other than their spouse. When a spouse dies, the AB trust splits into trust A, the survivor’s trust, and trust B, the bypass trust for the decedent. Splitting the trust minimizes estate taxes, deferring them until the surviving spouse’s death. Bypass trusts offer a surviving spouse limited control, but terms can be set so one can access or draw income from the assets.

More on the survivor’s trust

The surviving spouse’s assets are distributed to the survival trust once the other spouse is deceased. The separate property and half the community property owned by the surviving spouse is now held in the A trust. This type of estate planning provides the surviving spouse with a new revocable trust and more control over their assets. In contrast to the bypass trust, assets in the survivor’s trust are not subject to estate tax until the surviving spouse dies.

The AB trust is designed to help pass assets to beneficiaries while reducing probate costs and estate taxes. Higher estate tax exemptions and the portability provision from the IRS have made AB trusts less common than they once were. Instead of triggering at $1 to $ 2 million estates, AB trusts in 2023 require $12.9 million for an individual’s estate or $25.8 million for married couples.