Navigating estate planning as a surviving spouse can be complex, especially when dealing with the intricacies of an A-B trust. In this episode of “Trustee and Executor Responsibilities: Best Practices and Pitfalls,” Kirsten Howe and associate attorney Jessica Colbert focus on the A-B Trust—an estate planning tool that was once commonly used to minimize estate taxes but is often misunderstood today. They explain what an A-B Trust is, why it’s important to address the trust split promptly after a spouse’s passing, and the complications that can arise if it’s delayed. Whether you’re a trustee, executor, or simply looking to better understand how to protect your assets, this episode offers clear, practical advice to guide you through the process. Tune in to learn the essential do’s and don’ts for surviving spouses handling an A-B trust.
Time-stamped Show Notes:
0:00 Introduction
1:11 Curious about how an A-B Trust works? Press play here for a straightforward explanation.
1:52 Did you know an A-B Trust might not be the best tool for avoiding estate taxes?
3:14 Ever heard of a “stale trust”? This is what happens when you wait too long to address your trust after a loved one passes.
4:14 If you have an A-B Trust, splitting it when your spouse passes is required—but there is a potential workaround. Learn more here.
Transcript:
Hello and welcome to Absolute Trust Talk. This is our video podcast at Absolute Trust Counsel. I am Kirsten Howe, and I’m joined here by my associate attorney, Jessica Colbert. We’re going to talk a little bit more about a very specific trustee do and don’t. We’re kind of on a roll here; we’ve done a couple of episodes on some of our favorite tips for trustees and executors.
Today, this particular trustee do and don’t is directed at surviving spouses, so people who have experienced the death of their spouse. This particular topic is about things that they need to pay attention to in their joint married trust, and I’m talking about the A-B trust. We’ve had other episodes on this topic, but it does fall into the category of trustee do’s and don’ts.
Before we get into this, we’ve got to help our listeners understand what we’re talking about. “What are you talking about? What is an A-B trust? I don’t know what that means.” So, Jessica, I’m going to ask you to give us the basics on A-B trusts.
An A-B trust is a trust that requires, upon the death of the first spouse, that the trust actually splits into two trusts—that’s the A and the B. This was a very popular structure for avoiding estate taxes upon the first spouse’s death. Each person has an estate tax exemption amount. The way it works is that upon the death of a person, we add up the value of everything they own. If it’s over that estate tax exemption amount, your family must pay estate taxes. Your family will not have to pay estate taxes if it’s under that exemption amount. we currently have a very high estate tax exemption amount—$13.6 million per person.
The fact that it’s so high is way more money than the vast majority of my clients, friends, and myself, everybody I know, has. Worrying about estate tax is not what we do. For most people, that’s not an issue. So, most people don’t need that A-B structure to avoid paying estate taxes. There might be other reasons why you want it, but most people don’t need it for that reason.
When we have to split the trust, we have to get valuations on every asset. We have to do legal work to re-title assets and figure out what to put in the A Trust and what to put into the B Trust—it’s a lot of legal and financial work, and ongoing tax reporting must happen. It’s just complicated and not for everybody.
We often find that spouses need to realize they need to do this work. They need to learn what their trust says. Their spouse has just died, and they think, “I have a trust; I don’t need to do anything else. I’m set. “When you have this A-B-style trust, that’s not true.
Yes, we find that when a client comes to us and their spouse died many years ago, it ends up being a lot more complex to make this split happen. If the spouse died seven years ago, we have to go back and get appraisals for things seven years ago, and that adds up and ends up adding a lot more, which adds complexity and also ends up being more expensive for the legal work.
Now, of course, we understand that when your spouse dies, your first call isn’t going to be to your lawyer. There are other things you’re thinking of. You’re grieving, and we understand that. Take your time, but you do need to address this within a reasonable period of time. We recommend getting in contact with your lawyer as soon as possible.
I’d say that within the first year, if you can start taking care of these things, that’s fine. When it gets too much further out, it becomes what we call a “stale trust,” meaning it should have been split a long time ago, but it didn’t happen. Now, we have a lot of work to sort this out.
What I’m also going to add in there is that in some situations, for some families, it makes sense to petition the probate court and ask the court to issue an order that says, even though your trust says it has to be split into two trusts, you don’t have to do that. Some families like that approach rather than going through all the hassle of splitting the trust, and then the tax reporting, and all that. It’s not appropriate for every family, but I think the bottom line trustee do and don’t here is:
The bottom line trustee do and don’t is to check and see if this is something that applies to you.
And don’t put it off. As with most things, the longer you delay, the harder it will be.
I hope that was informative. Jessica, thank you. We look forward to connecting with you next time.
Resources Related to This Episode:
- Absolute Trust Talk Episode 145: Trustee and Executor Responsibilities: Best Practices and Pitfalls Part 2 https://absolutetrustcounsel.com/145-trustee-and-executor-responsibilities-best-practices-and-pitfalls-part-2/
- Absolute Trust Talk Episode 144: Navigating Trustee and Executor Responsibilities: Best Practices and Pitfalls https://absolutetrustcounsel.com/144-navigating-trustee-and-executor-responsibilities-best-practices-and-pitfalls/
- Absolute Trust Talk Episode 105: AB Trusts: Do You Have One? If So, Do You Still Need One? https://absolutetrustcounsel.com/105-ab-trusts-do-you-have-one-if-so-do-you-still-need-one/
- A Will is Not Enough – Securing Your Legacy with Estate Planning Life can change in an instant. A will is not enough to be prepared. Get free access to our actionable E-book Guidebook #1 and start protecting your legacy today. https://absolutetrustcounsel.com/guidebooks/
- Learn how to comfortably define gray areas and assess your own unique needs to effortlessly build a secure future now. Check out Guidebook #2, Estate Planning Beyond the Basics, here > https://absolutetrustcounsel.com/guidebooks/
- Get our free introductory guide to the most used estate planning tool, family trusts, and understand how we plan to help protect your family. Guidebook #3: https://absolutetrustcounsel.com/guidebooks/
- Absolute Trust Counsel would love to offer access to our Incapacity Planning resource page: https://AbsoluteTrustCounsel.com/Incapacity-Planning/. We’ve collected our top planning information all in one place so listeners can find videos, guidebooks, blog posts, and a host of information with tips and strategies on implementing, planning, and protecting themselves and their loved ones.
- We’re pleased to provide a library of e-books to address common estate planning questions and concerns in practical, easy-to-understand language. https://AbsoluteTrustCounsel.com/Resources/.
- ASK KIRSTEN: If you’d like Kirsten to answer your question on the air, please email her at Info@AbsoluteTrustCounsel.com.
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