A-B Disclaimer Trusts

The tax concept of a deceased spouse unused exclusion amount, found in the Tax Relief Act of 2010, has caused many individuals to second guess creating a bypass trust in 2011 or 2012. However, Marital Deduction/Bypass Trust combinations can still be useful for protecting a surviving spouse’s assets from creditors and providing the first spouse to die a degree of control over the trust assets’ final disposition.

For clients with existing Marital Deduction/By Pass Trust combos (also known as A-B Trusts) that have become obsolete under current estate tax laws, a simple fix is to amend and restate the trust as an A-B Disclaimer Trust. Unlike standard A-B Trusts, A-B Disclaimer Trusts give the surviving spouse power over all the trust assets and do not freeze the terms of the estate plan at the death of the first spouse to die. A-B Disclaimer Trusts give the surviving spouse nine months following the first spouse’s death to decide whether or not to fund the B trust. If the surviving spouse opts to not fund the B trust, he or she must then rely on the deceased spouse unused exclusion amount to use the deceased spouse’s exclusion amount.

For more information on A-B Disclaimer Trusts, see William H. Byrnes and Robert Bloink, The Bypass Trust is Obsolete: Now What?, AdvisorOne, Sep. 8, 2011.

Special thanks to Jim Hillhouse (WealthCounsel) for bringing this article to my attention.