AB Trust: Do You Have One? Do You Need One?

Do you have an AB Trust or wonder if you need one?
Ever open a closet drawer only to discover something from your past that’s long since been rendered obsolete? More often than not, this obsolescence comes by virtue of outdated technology - or, in the case of clothing, because of a shift in what’s considered fashionable. Think VHS players, a Sony Walkman . . . parachute pants.
While you probably wouldn’t expect to find any such relics within the realm of estate planning, they might just exist there too. If you’re married, an excellent case in point is the AB trust you’ve been holding onto for quite some time - maybe without even knowing it. And like those archaic electronic devices or that “of its time” fashion, it may be time to kick it to the curb.
At one time, AB Trusts were very common. They harnessed a specifically designed structure to minimize exposure to the California estate tax laws that included a surprisingly low exemption - as low as $1 million dollars. So, if a couple had a worth of $2 million and one spouse died, the remaining spouse was often saddled with a substantial estate tax liability.
But, in 2013, those estate tax laws changed dramatically. That exemption mentioned above was bumped up by a multiple of more than 12 times - meaning that it now shielded a far greater number of estates from estate tax liability and, for many couples, also rendered their AB Trust obsolete.
Are you one of these couples? Tune into the latest episode of Absolute Trust Talk to find out. Kirsten Howe and associate attorney, Madison Gunn, will take a close look at AB Trusts, including the reasons why they became such a “go-to” strategy for so many married couples, why this type of trust can be more trouble than they’re worth for some, and how they still offer specific protection that may make them invaluable for a few others.
0:00 Introduction
2:09 This distinction underscores the importance of having an actual trust vs. relying on a will to carry out your wishes.
2:31 A trust document features an essential requirement, but there are several ways it can be executed.
2:55 This major decision will have a profound effect on the structure of a couple's trust.
3:18 Listen here to find out what an AB Trust actually does.
3:43 Wondering why it's called an AB Trust? The basic idea is when a married couple has a joint trust, and it's set up specifically as AB, then when one spouse dies, it will split into two trusts.
5:54 So, why would someone want to control what their spouse does with the property after they die? Like blended families, creditor protection, and more. Listen in as Kirsten and Madison discuss.
7:05 Creditor protection that an AB Trust offers may make it worthy of consideration for some couples because assets will bypass the surviving spouse in the case they may be sued, for example.
8:55 While some may feel that elder protection laws are enough to shield a surviving spouse from predation, recovering the estate is one thing those laws don't do.
10:09 You might like AB Trust's protections, but there are tradeoffs. Here are some of the cons.
11:50 Think that an AB Trust creates too much complexity? Here's what happens in its absence.
14:05 Some couples with an AB trust didn't even know they had one and wanted to get rid of it. They may have gotten it in the first place to help minimize estate taxes for the family.
15:14 In 2013, two significant changes to California's estate tax law rendered AB Trusts less appealing than they once were.
15:39 Portability is one change that underscores why those changes make AB Trusts somewhat obsolete from a taxation perspective. This allows the surviving spouse to use some of the exemption.
17:49 Today, we can effectively do the same thing we used to use AB Trusts for but without the extra irrevocable trust if appropriate.
18:13 As we've been discussing, the AB trust is right for some couples but not all, so how do you ensure it's still right for you? Hint: You should REALLY talk to an attorney!
20:41 While an irrevocable trust is unchangeable in theory, there are exceptions. Here's an example.
22:17 Going to court is much more expensive than not going to court, so if you haven't updated your trust in 5 or 10 years, it's time.
23:00 Can you petition to modify or eliminate the bypass trust once an AB Trust has been divided? Listen here.
24:31 Can you do a petition to modify many years after the first spouse dies? Yes, you can.
Do you need help with your estate planning or trust administration now? We can help. Together our Absolute Trust Counsel team will take a look at your situation and your specific needs and develop a strategic plan that will protect you and your loved ones, regardless of what may come. Here's a link to schedule your free discovery today absolutetrustc....
Kirsten Howe & Madison Gunn Can Be Reached at 925-943-2740 or [e-mail].

[@Q2MarkSusieHays]

Thank you, Kristen and Madison!

[@debralev]

I love your videos! You make learning serious issues fun.

[@absolutetrustcounsel]

Hi Debbie, thank you for your message. This is Kara with the Absolute Trust Counsel team. We appreciate the positive feedback and we are pleased to hear you are finding our content helpful and entertaining. Thank you again and best wishes, the ATC team

[@KenTraining]

what are the things that can happen in an A B trust where the first spouse dies and the irrevocable trust was never formed?

[@absolutetrustcounsel]

Hi @kentraining, Thank you for your response. We hope you're doing well. If the trustee doesn't do what the trust requires, the trustee can incur personal liability for their actions. If you'd like to discuss how to rectify a situation like this, you can reach out to us for a free consultation by scheduling an appointment here: absolutetrustcounsel.com/scheduling/ or you can email us at [e-mail] or you can call our office at 925-943-2740.