How does a so-called “AB Trust” save estate taxes?
A so-called “AB Trust” (also often referred to as a credit shelter trust or a by-pass trust) is a form of trust arrangement used to avoid or minimize estate taxes when the total assets of a married couple exceed what is commonly called the federal estate tax per person exemption amount. AB Trusts are not relevant to unmarried persons. The designation “AB” is used simply to indicate that this trust arrangement has two parts to it (in other words, it could have been called the “1,2 Trust” simply to indicate that there are two components to the arrangement). The federal estate tax “exemption” is the amount of assets that a person can own at the time of his or her death without being subject to any federal estate tax. The use of an AB Trust to save estate taxes is best explained with an example. To keep the example short and simple, some simplification will be utilized. Suppose, for example, that Husband and Wife are married and their total assets are $1.8 million and that the per person f
