Estate planning: the AB trust

Much of estate planning is about avoiding unnecessary costs so that one's beneficiaries can receive the assets that a testator wants them to receive. It sounds easy enough, but estate planning can be challenging and, for many in Sacramento, confusing. One reason is because there are so many estate planning options and tools at one's disposal. It is therefore wise that those considering developing a new or modifying an existing estate plan inform themselves as fully as possible before moving forward.

This week we will look at one estate planning option: the AB trust. The AB trust is often referred to as the tax-saver trust because, when used properly, it can allow an estate to pass free of taxation. To do so, assets are placed in an irrevocable trust that is meant to benefit one's spouse upon the testator's death. Once the testator dies, the trust property is usable by the spouse, who does not actually own the property. Since the spouse does not own the property, when he or she dies, the estate passes to beneficiaries free of estate taxation.

Some people struggle with the AB trust because it essentially takes property that was jointly owned and enjoyed by spouses and places the property into a trust where the surviving spouse can only retain certain rights to the property. This can create conflict between a surviving spouse and those beneficiaries who now officially own the property.

The best way to avoid conflict in these matters is to ensure that one's estate plan is not only clear, but fully understood by beneficiaries and those who stand to benefit from trusts. Therefore, those developing an estate plan may want to discuss the wishes they have for their estate with an experienced and competent attorney.

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