ab living trust

Guest 0.10 Dollars($)

what is a AB Living Trust and I did like to know how it helps with estate taxes?

carnahandavid · Joined: 21 Dec 2006 Posts: 239 58.41 Dollars($)

Burchmore,

AB Living Trust is sometimes also known as exemption trust. It helps married persons avoid certain estate taxes. Creating such a trust helps your beneficiaries receive assets tax free.

How it works,

If a person has a trust with $4,000,000 in assets, after husband dies, all the assets in the trust pass to wife. As there is no estate tax on amount transfer from one spouse to another, wife will not have to pay any estate tax.

But when wife dies, children receiving property, amount up to the exemption limit is received by them without any tax obligation (estate tax exemption for years 2006-08 is of $2 million). The rest amount which crosses the exemption limit will fall under estate tax calculation. This means they will be required to pay estate tax on $2,000,000.

While in AB living trust, wife does not take legal possession after husband dies. Wife is entitled to use income generated from the property but cannot sell it. And share of each spouse is kept separate.

In the above example, after death of husband, the trust splits into 2, Trust A has husband's share of trust property and it becomes irrevocable. If we assume that such share equals $2,000,000, then wife has $2,000,000 worth of assets in a separate Trust B.

Wife cannot sell property which is in Trust A, but can use it and use the income it generates. But she has the right to sell or transfer property which is in Trust B.

After wife also dies, trust property will be distributed to children. As property in Trust A was not transferred to wife when husband died, he remains eligible for his $2,000,000 estate tax exemption. Thus, property in his Trust A will pass on to his children tax free. Similarly, wife is also eligible for her $2,000,000 exemption and her Trust B property will also pass on to children tax free.

David

Guest 0.10 Dollars($)

There is uncertainty about the estate tax laws. By 2010 the estate tax will be phased out as per the Economic Growth and Tax Relief Reconciliation Act of 2001. In 2010 estate taxes will be repealed. But if repeal is not extended estate taxes will again be applicable as they were in its pre Act form in 2011. So as of now we only know that estate taxes will be repealed only for 1 year.

Guest 0.10 Dollars($)

All times are GMT - 7 Hours

Page 1 of 1