A-B Trust

DEFINITION of 'A-B Trust'

A trust created by a married couple with the objective of minimizing estate taxes. An A-B trust is is a trust that divides into two upon the death of the first spouse. It is formed with each spouse placing assets in the trust and naming as the final beneficiary any suitable person except the other spouse. The trust gets its name from the fact that it splits into two upon the first spouse's death – trust A or the survivor's trust, and trust B or the decedent's trust.

BREAKING DOWN 'A-B Trust'

The surviving spouse has complete control over the survivor's trust, which contains his or her property interests, but has limited control over the assets in the deceased spouse's trust. However, this limited control over the assets in the decedent's trust will still enable the surviving spouse to live in the couple's house and draw income from the trust, provided these terms are stipulated in the trust. Upon the death of the surviving spouse, the property in the decedent's trust passes to the beneficiary(s) named in this trust. As this property is not considered part of the second spouse's estate for purposes of estate tax, double-taxation is avoided.

RELATED TERMS
  1. Credit Shelter Trust - CST

    A type of trust that allows a married investor to avoid estate ...
  2. Marital Trust

    A fiduciary relationship between a trustor and trustee for the ...
  3. Qualified Terminable Interest Property ...

    A type of trust that enables the grantor to provide for a surviving ...
  4. Beneficiary Of Trust

    A beneficiary of trust is a person for whom a trust was created, ...
  5. Alimony Substitution Trust

    A trust agreement in which a divorced person agrees to pay spousal ...
  6. Exemption Trust

    A trust whose purpose is to drastically reduce or eliminate federal ...
Related Articles
  1. Retirement

    Estate Planning: Marital And Non-Marital Trusts

    by Cathy Pareto, CFP®, AIF® (Contact Author | Biography) Before we begin talking about these types of trusts, let's first begin by introducing the term "unlimited marital deduction." ...
  2. Professionals

    Types and Basic Provisions

    Types and Basic Provisions
  3. Retirement

    Surprising Ways a Trust Could Help Your Family

    Everything you always wanted to know about setting up trusts, in handy glossary form.
  4. Professionals

    Trust Beneficiaries: Income and Remainder

    Trust Beneficiaries: Income and Remainder
  5. Professionals

    Marital Deduction and Bypass Trust Planning

    Marital Deduction and Bypass Trust Planning
  6. Retirement

    How To Set Up A Trust Fund In Australia

    No, they're not just for the super-rich. But you need to know the rules.
  7. Retirement

    Should You Put Your Faith In A Trust?

    Many institutions want a piece of your portfolio, but trusts can provide a one-stop shop.
  8. Retirement

    How To Set Up A Trust Fund In The U.K.

    A guide to the whys and wherefores of setting up this most versatile of estate-planning instruments in the United Kingdom.
  9. Retirement

    Estate Planning: Introduction To Trusts

    by Cathy Pareto, CFP®, AIF® (Contact Author | Biography) A trust is an agreement that describes how assets will be managed and held for the benefit of another person. There are many ...
  10. Retirement

    Advanced Estate Planning: Using Trusts

    By Steven Merkel While making a will is one of the most important documents in estate planning, there are typically always a few items, property, or accounts that while they're included in your ...
RELATED FAQS
  1. What is the difference between revocable and irrevocable intervivos trusts?

    Learn what an inter-vivos trust is, the difference between an irrevocable and a revocable inter-vivos trust, and why it is ... Read Answer >>
  2. What is the difference between a revocable trust and a living trust?

    Learn how a revocable trust and living trust are two terms used to describe the same thing and what the key provisions are ... Read Answer >>
  3. How can a trust lower federal transfer tax liability?

    A trust is an arrangement in which an individual or entity controls property or funds on behalf of someone else without actually ... Read Answer >>
  4. What are the keys to setting up a trust fund?

    Setting up a trust to secure your assets for a beneficiary allows you to set the terms under which the beneficiaries are ... Read Answer >>
  5. What happens when a will and a revocable trust conflict?

    Learn why a revocable trust supersedes a will, but only for the assets held in the trust, when there is a conflict between ... Read Answer >>
  6. How are trust fund earnings taxed?

    Trust fund earnings that are distributed are paid by the beneficiary. The trust pays taxes on retained earnings and principal ... Read Answer >>
Hot Definitions
  1. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  2. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  3. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
  4. Generally Accepted Accounting Principles - GAAP

    The common set of accounting principles, standards and procedures that companies use to compile their financial statements. ...
  5. DuPont Analysis

    A method of performance measurement that was started by the DuPont Corporation in the 1920s. With this method, assets are ...
  6. Call Option

    An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument ...
Trading Center