Sunday, July 11, 2010
"AB," "By-Pass," "Credit-Shelter," and "Marital Deduction" trusts are all basically synonymous terms for separate trusts for each spouse with a married couple. Each individual citizen under U.S. federal estate tax law may pass a "threshold" value of assets to their heirs without federal estate taxation. This amount is referred to as the Exemption Equivalent.
This technique works only with married couples. Current Federal Estate and Gift tax laws provide that transfers at any time of any amount between spouses who are U.S. Citizens are not subject to the Estate (or Gift) Tax. However, this is a trap for the unwary. Such outright transfers may "waste" the Exemption Equivalent of the first such spouse to die in an Estate Tax Situation.