AB Living Trust


An AB living trust is a type of trust account that is often used by married couples. An AB living trust is actually two separate trust accounts, one belonging to the husband, and the other belonging to the wife.  Advantages of AB living trusts include tax exemptions and control over disbursement of assets. On the other hand some of the disadvantages of AB living trusts include complicated recordkeeping and lack of accessibility for the surviving spouse.

Commonly used for estate planning by married couples, an AB living trust is two trust accounts where the husband founds one and the wife founds the other.  The account is held and managed by a trustee, usually a bank or attorney who oversees the disbursement of the assets. Typically, the couple will split the marital assets equally between the accounts.  The account of the first spouse to die, the A account, does not get transferred to the surviving spouse.  Instead, it is held in trust for the beneficiaries.  The surviving spouse still has full access to his or her trust account, the B account, and also has access to any income generated by the A account.  On the death of the remaining spouse, both accounts are

disbursed to the beneficiaries according to the terms of the accounts.

There are advantages to setting up an AB living trust.  The A account is not subject to estate taxes on the death of the first spouse.  Since the A account will not have already been passed on at the time of the second spouse’s death, assets in both accounts are eligible for the one-time estate tax exemption.  Another benefit to an AB living trust is that it is not subject to probate, which hastens the assets availability to the beneficiaries.  A third advantage is the control account founders have in choosing their beneficiaries.  Although many married couples choose the same beneficiaries for their accounts, often their children, they do not have to have the same beneficiaries.  This allows for the consideration of children from previous marriages or that may result from remarrying.

There are also some disadvantages to an AB living trust.  Since the death of the first spouse changes the tax status of the A account, the accounts’ records must be maintained separately.  In addition, the surviving spouse does not have access to the assets in the trust account of the deceased spouse, which means the surviving spouse cannot sell the assets in the A account.  The A account, on the death of the first spouse, becomes irrevocable, which means that no changes can be made to the account.  Another disadvantage to an setting up a trust  (AB living trust) is the estate tax laws are changing and the tax benefits of the AB living trust after the year 2011 are unclear.

The effect future estate tax laws may have on AB living trusts is uncertain at this time; however, the current tax advantages make an AB living trust an appealing estate planning tool for married couples.