A trust designed to make sure the personal estate tax exemption of each spouse (currently $1.5 million) is used to the fullest extent possible, while allowing the surviving spouse to have use of the assets of the deceased spouse during the remainder of the surviving spouse's lifetime.
A trust that allows married couples to reduce or avoid estate taxes. Each spouse puts his or her property in a separate trust. When the first spouse dies, his or her half of the property goes to the beneficiaries named in the trust with the condition that the surviving spouse has the right to use the property for life and is entitled to any income it generates. When the surviving spouse dies, the property passes to the trust beneficiaries, usually the couple's children. The trust property is not considered part of the surviving spouse's estate for estate tax purposes. By having an AB trust, the surviving spouse's taxable estate on death is half the size it would be if the property were left directly to the surviving spouse.
A type planning utilizing irrevocable trusts used by married couples. In this type of trust arrangement, two trusts (trust A and trust B) are created at the time the first spouse dies. By dividing the decedent's estate into two trusts at the first death, each spouse can pass the maximum amount of property allowed to avoid federal estate taxes. One trust, usually trust A, is often referred to as the marital deduction trust and the other trust, usually trust B, is often referred to as the credit shelter trust or bypass trust.