A-B Trust

AAA

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.

INVESTOPEDIA EXPLAINS '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. Decedent

    A person who is no longer living. Just as a taxpayer's possessions ...
  2. Trust

    A fiduciary relationship in which one party, known as a trustor, ...
  3. Estate Planning

    The collection of preparation tasks that serve to manage an individual's ...
  4. Estate Tax

    A tax levied on an heir's inherited portion of an estate if the ...
  5. Irrevocable Trust

    A trust that can't be modified or terminated without the permission ...
  6. Deferred Tax Asset

    A deferred tax asset is an asset on a company's balance sheet ...
Related Articles
  1. Options & Futures

    Getting Started On Your Estate Plan

    With some preparation, you can save your heirs from paying a hefty estate tax. Here are some tips.
  2. Options & Futures

    Three Documents You Shouldn't Do Without

    Estate planning is not just about the division of assets after you die. Read on to save your loved ones extra grief.
  3. Options & Futures

    An Estate Planning Must: Update Your Beneficiaries

    Life changes make it time to rewrite your plan's designations.
  4. Options & Futures

    Your Will: Why You Need A Power Of Attorney And Beneficiaries

    What would happen if you were suddenly unable to manage your financial affairs? Preparation is the best protection.
  5. Retirement

    Skipping-Out on Probate Costs

    Don't let bad estate planning lead to unnecessary costs and stress for your inheritors.
  6. Taxes

    What is Value-Added Tax (VAT) and who pays it?

    Learn about the definition of value-added tax, the necessary circumstances that require a business to pay it and when a business is exempt.
  7. Taxes

    What is the difference between gross income and earned income?

    Being able to distinguish between earned income and gross income is an important tool in preparing for and filing your individual tax returns each year.
  8. Budgeting

    Can trust funds be activated before the grantor intended?

    Trust law gives the grantor specific rights over the release of assets and therefore it is not possible to change the stipulations without his or her consent.
  9. Retirement

    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 allowed to access these assets.
  10. Investing Basics

    What are typical trust fund management fees?

    Learn about trust fund management fees, such as the annual management fee, annual expense ratio, brokerage commissions and trading expenses.

You May Also Like

Hot Definitions
  1. Weight Of Ice, Snow Or Sleet Insurance

    Financial protection against damage caused to property by winter weather specifically, damage caused if a roof caves in because ...
  2. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
  3. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
  4. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories ...
  5. Federal Funds Rate

    The interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution ...
  6. Fixed Asset

    A long-term tangible piece of property that a firm owns and uses in the production of its income and is not expected to be ...
Trading Center