Why would a client still need an A/B trust if the exemption from federal estate taxes is now set “permanently” at $5 million (indexed for inflation)? If ones estate is under the estate tax exemption amount do you still need an A/B trust? If the sole reason for doing an A/B trust was to minimize federal estate taxes than there may be an argument to not have an A/B trust if your estate is less than the exemption, but the reality is there are other reasons to do an A/B trust.
One of the reasons why an A/B trust is still a good idea is to minimize or avoid state estate taxes. In addition to federal estate taxes there are state estate taxes with exemptions far lower than the federal estate tax exemption. One way to avoid or minimize those state estate taxes is to have an A/B trust.
Creditor protection is another reason to have an A/B trust. With an A/B trust the trust can protect up to one-half of the estate value from future creditors of the surviving spouse. This seems like a pretty important and relevant goal considering there are approximately 1 in 12 Americans that are involved in some type of litigation.
Another important reason for doing the A/B trust is to protect the decedent’s heirs in the event the surviving spouse gets remarried. The B trust can ensure that the estate of the decedent is passed on to his/her heirs instead of the new spouse. We can also protect up to one-half of the estate in the event the surviving spouse gets divorced. This can be a very significant protection to both the surviving spouse and the deceased spouse’s heirs considering 50% of all marriages end in divorce.
The attorneys at the law firm of Morris Hall have been doing estate planning for over 40 years in Arizona. We belong to a nationally recognized institution, the American Academy of Estate Planning Attorneys. We have given numerous seminars to both the private and public sector on various estate planning topics.
This blog should be used for informational purposes only. It does not create an attorney-client relationship with any reader and should not be construed as legal advice. If you need legal advice, please contact an attorney in your community who can assess the specifics of your situation.
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