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  • Wendi Gundersen

Is It Time to Ditch Your "A-B" Trust?



If you created your A-B Trust before 2013, it may be time to rethink it. Changes in estate-tax law have occurred, and an A-B Trust may no longer be advantageous.

Reasons to Amend Your A-B Trust

You should find a qualified estate-planning attorney to discuss amending your trust right away, if the value of your combined net estate is less than $10.98 million and you are married. This is the amount of the federal-estate-tax exemption for married couples. Now that the estate-tax exemption is so high, most couples will not owe estate taxes when they die.

Having an unnecessary A-B Trust costs more money to administer, takes more time to manage, and can even increase your capital-gains taxes. Any real property in an A-B Trust will lose out on the double step-up in basis. As a result, more capital gains will be realized, and your trust will have to pay more taxes.

Reasons NOT to Amend Your A-B Trust

Not everyone should amend their A-B Trust. Many people in blended families create an A-B Trust to provide for the surviving spouse, while protecting their children's inheritance. An A-B Trust in this situation is advantageous because it prevents the surviving spouse from disinheriting his or her step-children after the first spouse dies. An A-B Trust also protects your children's inheritance, if your spouse remarries after you die by keeping a portion of your estate in an irrevocable trust.

So, as you can see, an A-B Trust can be advantageous in some cases, but it is not necessary for every married couple. If you need to ditch you A-B Trust, see a qualified attorney before it is too late. Once the first spouse dies, you will be stuck with it in most cases.


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