When a married testator has an estate with a value that surpasses their remaining estate tax exemption amount, this then becomes a usual procedure used in a will. A testator forms a a marital trust is known as ‘A Trust’ at the first death, for the sole advantage of the surviving spouse for life (also referred to as a ‘Marital Trust’ or ‘QTIP Trust’) and a bypass or ‘B Trust’ for the advantage of the testator’s descendants or the testator’s surviving spouse and descendants for the duration of their life (also referred to as the ‘Credit Shelter Trust’ or ‘Family Trust’). The remaining assets of both trusts on the whole pass to the testator’s descendants after the death of the surviving spouse. At the death of the surviving spouse, the B trust transfers to the beneficiaries without estate taxes, regardless of the B Trust’s value during that period. Included in the surviving spouse’s estate is the value of the A trust for estate tax purposes. The surviving spouse’s remaining estate tax exemption is applied to the A Trust’s collective value and the surviving spouse’s assets.
Only the decedent could use their estate tax exemption under prior law, so it was imperative to establish the B Trust to highlight this exemption. Not everyone will need the complexity of the A-B trust structure to take advantage of his or her estate tax exemption since the inclusion of portability is now part of the law. Portability permits the surviving spouse to utilize the unused estate tax exemption of the first spouse to expire. However, caution is advised as while it is straightforward and inexpensive to leave all assets outright to the surviving spouse and plan on their use of portability to circumvent estate taxes. Trusts offer far more pluses than just tax planning. Continuation of trust usage gives you the surety that your assets will be used and allocated as and to whomever you desire. Other advantages such as asset or creditor protection and generation-skipping are also offered as an option.
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