Question

What are ABC trusts and how are they used for estate planning purposes?

Answer 1

Ans. : ABC trusts:

* ABC Trust is a combination of trusts meant for married couples with an estate worth more than the estate tax exemption amount.

* At the death of a spouse, an ABC Trust not only separates the survivor spouse’s assets from the late spouse’s assets but also divides the late spouse’s assets into the amount of assets allowed by the estate tax exemption and the amount that exceeds the allowed exemption.

* An ABC trust arrangement allows you to defer estate taxes on your assets until the death of the surviving spouse while protecting the inheritances of children from prior marriages.

* When planning to reduce federal estate taxes, married couples can make use of the AB Trust system in their estate planning.

* The AB Trust is set up in such a way that they can effectively transfer two times the maximum federal estate tax exemption to their heirs without encountering federal estate tax penalties.

* However, in states that collect separate estate tax, traditional AB Trust planning can cause part of the B Trust to be taxed when the first spouse dies.

* Enter the ABC Trust system of estate planning for married couples, also known as "gap trust planning" and making the "state QTIP election." A handful of states allows the payment of both federal and state estate taxes to be deferred until after the surviving spouse's death.