It is likely you’ve heard it stated that the only reason for a married couple to create an A/B trust is to maximize the federal estate tax exemption. Unfortunately many professionals even believe this statement to be true. However, there are many additional benefits provided by an A/B trust. The B trust, when set up properly, also provides protection from state estate taxes, debtors and creditors, remarriage and long term care spend down.
State Estate Taxes: Although there is no federal estate tax for 2010, many states still have their own state estate tax this year. This tax is based upon the size of the estate and is due nine months after a death. Through the use of the B trust, a surviving spouse can defer the payment of state estate taxes until their death, thereby ensuring these funds are available during their lifetime. However, if a B trust is not created and funded upon the death of the first spouse, the surviving spouse will have to pay any state estate taxes within the nine month period.
Debtors and Creditors: If the surviving spouse receives a judgment against them, a court cannot force payment from the B trust. This means that debtors and creditors cannot take funds from the B trust, thereby ensuring that a surviving spouse is protected and able to safeguard their available funds.
Remarriage: The assets held by the B trust are also protected from a surviving spouse’s new spouse and any prior children of the new spouse. The B trust is an irrevocable trust, which means that the trust cannot be changed, regardless of how persuasive a new spouse may be. The beneficiaries chosen by the deceased spouse cannot be changed in the B trust, an important protection for the surviving spouse.
Long Term Care: In order to receive assistance for long term care needs, the surviving spouse must spend down all but $2,000 worth of assets. However, the assets within a properly created B trust are protected from this required spend down., thereby allowing for greater flexibility in determining whether a surviving spouse may be eligible for public benefits. By protecting the assets of the B trust, the surviving spouse always has a side pot of money for their benefit without it needing to be spent on long term care costs.
While many have the misconception that an A/B Trust is only beneficial for maximizing a couple’s federal estate tax exemption, it is apparent that there are many additional benefits that help assure the protection and support of the surviving spouse. What better way to protect your loved ones than with a living trust from Morris Hall? Provide for their future by creating a living trust today.
