Administration of the A-B Trust
Upon the first spouse’s passing, the living trust is divided into two components, Trust A and Trust B (A-B Trust). These two components are also known as the “bypass trust” and the “survivor’s trust.”
The assets of the trust’s deceased grantor, which generally include both the decedent’s separate property and half of his or her communal property, are held by Trust B. If the couple has $1,500,000 worth of common property, Trust B would have $750,000. The estate tax exemption, which ranges from $1,000,000 to $3,500,000 depending on the year of death, can only be held in Trust B. No federal estate tax is owed as Trust B is subject to estate tax as long as the amount placed in it is less than the exemptable amount.
Any leftover assets are transferred to Trust A. Any assets placed in Trust A are tax exempt because it is a marital deduction trust for the benefit of the surviving spouse. Trust A now has full authority over its assets and is a revocable trust, with the survivor as trustee. He or she has complete control over the trust, including the right to alter any of its investments and to take away all of its assets or income.
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