At Absolute Trust Counsel, one of the pieces of advice we like to shout from the roof tops is that people need to keep their estate plans up to date! We constantly find people who fail to do so. In many cases, we can fix the challenges that arise, but sometimes, it may not be possible, and we must navigate a more difficult path. In this specific episode, we are going to focus on AB Trusts and the issues that typically arise.
It happens more than you might think – often, when a spouse dies, the widow(er) later finds out their joint trust is set up in a way that requires them to split the trust in two. This type of trust, which we call an AB Trust, was the standard practice until 2013, and it was used to avoid the need to pay estate taxes, which worked out perfectly. However, when the government gave us portability, things changed. When we uncover AB Trusts, it tends to mean that the client will spend A LOT of extra time and money managing the split and maintaining the additional trust moving forward.
So, if you’re a married couple out there who had your estate plan written before 2013, we’re talking to you! It’s time to get your estate plan out, take it to an attorney, and make sure it still works for you! And, if you’re a widow or widower who hasn’t met with an attorney yet, we highly recommend you do so now to ensure you’re not behind on taking specific actions.
“It’s always better to pay your lawyer to do a plan than to pay them to fix a failure to plan afterward. Fixing is always more expensive.”
In this episode of Absolute Trust Talk, Kirsten and Madison share everything you need to know about AB Trusts, including:
- The deeper complexities of AB Trusts, such as how they work and why we have them in the first place,
- Your options if you find out you have an AB Trust after your spouse passes,
- What filing a petition for modification of your trust looks like,
- Why petitioning the court doesn’t always work, depending on your heirs,
- The importance of talking to your attorney and keeping your trust up to date
- And much more!
Whether you’re just beginning to dip your toe into estate planning, are considering updating your trust, or have recently found out you’re stuck with an AB Trust, this podcast is for you. No matter where you are in your journey, knowledge gives you the power to take control of your assets and helps protect your family in the future. So don’t miss out! Tune in for the ultimate estate planning advice NOW!
Big Three from Episode #123:
- Keep your trust updated! We cannot say this enough. Nearly all estate planning problems can be solved by keeping your plan current. If your trust was written before 2013, pull it out and review it ASAP!
- If you find out you have an AB Trust after your spouse dies, you have two options: Split the joint trust as required or file a petition for modification. Remember, splitting the trust will cost more time and money, but petitioning can also have pros and cons; for example, everyone mentioned in the trust must be notified of the petition, and they have the opportunity to object, so there are no guaranteed outcomes. We highly recommend sitting down with your attorney and discussing all your options.
- The purpose of an AB Trust was to help eliminate estate taxes by using up both spouses’ estate tax exemptions. Now, we have portability, which automatically allows the surviving spouse to pick up and use a deceased spouse’s unused estate tax exemption.
Time-stamped Show Notes:
0:00 Introduction
2:02 We’re starting this podcast with the basics: What is an AB Trust, and why do they exist?
4:23 Bypass Trust, Credit Shelter Trust, Exemption Trust, and B Trust are a few of the naming conventions of the second trust created that half of the estate will go into. Kirsten and Madison run through a quick example to help clarify.
5:43 An AB Trust can be tempting, but managing it takes time and money – splitting the trust, paying specialized taxes, etc.
6:55 AB Trusts were the standard until 2013, so what changed? We have portability, allowing us to file an estate tax return to use your deceased spouse’s unused exemption.
9:57 So even though we don’t need them, there are, of course, still AB Trusts floating around out there. It turns out many don’t even know their trust is set up in this way! This is why checking your trust and updating it regularly is critical.
11:51 After you find out you have an AB Trust, there are two options: Continue splitting the trust or petition the court to modify the trust due to a change in circumstances. Here’s what you need to know.
14:02 There are pros and cons to petitioning to modify your trust. On the pro side, it will be less expensive than splitting the trust, and you will help future heirs avoid a hefty tax bill.
14:53 So, what does the petition process look like? Start listening now as Kirsten and Madison break it down.
16:27 As Madison points out, petitioning the court doesn’t always work. Often, it can depend on who the beneficiaries are.
18:37 Here’s a factor to your estate planning that you may not have considered before – Privacy. There’s no reason anyone else should know your estate plan while you’re alive.
19:30 Here’s another nugget of free advice: Even if you haven’t talked to your current Estate Planning Attorney in a while, you can always contact another one if you need to have your trust reviewed or want to make changes.
21:45 Q&A: Can you still do a petition for modification if the first spouse died ten years ago?
24:01 Q&A: How long does the petition for modification take?
24:54 A final thought: For all married couples, dust that thing (your trust) off and read it!
26:15 Thank you for joining us, and we hope you got as much out of this episode as we did!
Resources/Links Mentioned in this Episode:
- Episode 105: AB Trusts: Do You Have One? If So, Do You Still Need One?
- 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, 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.
[AD] Estate planning addresses many vital factors about your future and legacy. Where do you get started if you don’t have an estate plan? If you do, how have new laws and life transitions changed? Will your plan still protect you? Regardless, you deserve to have control over your wants, needs, goals, and hopes for the future. We can help you understand your options and, legally, how you will best be protected at all touchpoints. Get started today by scheduling a free discovery call so we can discuss your needs. Visit https://absolutetrustcounsel.com/scheduling/ or call us at (925) 943-2740.