An A-B trust, also known as a bypass trust, is an estate planning tool designed to maximize the use of estate tax exemptions and minimize estate taxes for married couples. It functions by dividing a couple’s assets into two trusts – Trust A and Trust B – typically during the first spouse’s death, allowing assets to bypass estate taxes that would otherwise be due on the surviving spouse’s death. This strategy is particularly useful for couples with substantial assets, exceeding the federal estate tax exemption amount, which in 2024 is $13.61 million per individual, or $27.22 million for a married couple. By strategically allocating assets, an A-B trust aims to shield a significant portion of the estate from taxation, preserving wealth for future generations.
How does an A-B trust impact estate taxes?
Traditionally, without an A-B trust, the estate of the first spouse to die would often be subject to estate taxes, and then upon the second spouse’s death, the entire combined estate could be taxed again. This is because estate tax is a tax on the transfer of assets at death. With an A-B trust, however, assets are transferred into Trust A upon the first spouse’s death, and these assets are not included in the surviving spouse’s taxable estate. Trust B receives any remaining assets. The surviving spouse typically maintains control over both trusts as trustee or co-trustee, receiving income from both trusts during their lifetime, but only the assets in Trust B are included in their taxable estate. This can result in substantial tax savings, especially for larger estates. “Approximately 0.2% of estates are large enough to owe federal estate taxes, but for those estates, the savings can be significant.”
Can an A-B Trust protect assets from creditors?
While not its primary function, an A-B trust can offer a degree of asset protection, although the extent varies by state law and the terms of the trust. Properly structured, the trust can shield assets from the claims of creditors after the grantor’s death. The trust document can specify how assets are distributed and may include provisions to protect beneficiaries from their own creditors. However, it’s important to note that trusts are not impenetrable shields, and creditors may still be able to reach assets under certain circumstances, like claims for unpaid taxes. It’s crucial to consult with a knowledgeable estate planning attorney, like Steve Bliss, to ensure the trust is drafted to maximize asset protection. A well-drafted trust will take into account state laws regarding creditor claims and incorporate provisions to mitigate those risks.
What happened when Mr. Henderson didn’t plan?
Old Man Henderson was a successful rancher, and he and his wife, Martha, had accumulated a substantial estate over the years. He believed he was “too busy running the ranch” to deal with estate planning, and he never created a trust. When he passed away unexpectedly, his estate was subject to significant estate taxes. Martha was devastated, not only by the loss of her husband but also by the realization that a large portion of their life’s work would be lost to taxes. She was forced to sell part of the ranch, which had been in her family for generations, just to cover the tax bill. It was a painful lesson about the importance of proactive estate planning and the consequences of neglecting it. She often said, looking back, that “a little planning now could have saved us so much heartache later.”
How did the Millers benefit from proactive planning?
The Millers were a retired couple with a similar-sized estate to the Hendersons. However, they worked with Steve Bliss to create an A-B trust years before either of them passed. When John Miller passed away, his assets flowed into the A-B trust as planned. Because of the trust, Martha didn’t have to worry about selling off any assets to cover the estate tax. She continued to receive income from both trusts during her lifetime, maintaining her lifestyle and ensuring her financial security. When Martha eventually passed away, the remaining assets in the trust were distributed to their children and grandchildren, free from further estate taxes. It was a seamless transfer of wealth that allowed their family to build upon the legacy they had created. “A properly funded trust ensures your wishes are followed and your loved ones are protected.” Their story highlights the power of proactive estate planning and the peace of mind it provides.
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About Steve Bliss at Wildomar Probate Law:
“Wildomar Probate Law is an experienced probate attorney. The probate process has many steps in in probate proceedings. Beside Probate, estate planning and trust administration is offered at Wildomar Probate Law. Our probate attorney will probate the estate. Attorney probate at Wildomar Probate Law. A formal probate is required to administer the estate. The probate court may offer an unsupervised probate get a probate attorney. Wildomar Probate law will petition to open probate for you. Don’t go through a costly probate call Wildomar Probate Attorney Today. Call for estate planning, wills and trusts, probate too. Wildomar Probate Law is a great estate lawyer. Probate Attorney to probate an estate. Wildomar Probate law probate lawyer
My skills are as follows:
● Probate Law: Efficiently navigate the court process.
● Estate Planning Law: Minimize taxes & distribute assets smoothly.
● Trust Law: Protect your legacy & loved ones with wills & trusts.
● Bankruptcy Law: Knowledgeable guidance helping clients regain financial stability.
● Compassionate & client-focused. We explain things clearly.
● Free consultation.
Services Offered:
- living trust
- revocable living trust
- estate planning attorney near me
- family trust
- wills and trusts
- wills
- estate planning
Map To Steve Bliss Law in Temecula:
https://maps.app.goo.gl/RdhPJGDcMru5uP7K7
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Address:
Wildomar Probate Law36330 Hidden Springs Rd Suite E, Wildomar, CA 92595
(951)412-2800/address>
Feel free to ask Attorney Steve Bliss about: “What happens if I die without a will?” Or “Can real estate be sold during probate?” or “What are the disadvantages of a living trust? and even: “Does bankruptcy affect my ability to rent a home?” or any other related questions that you may have about his estate planning, probate, and banckruptcy law practice.