Revocable Trusts are tools that allow one to own assets and property in a manner that avoids the necessity of probate upon the death of the trust Grantor(s).
An A/B Trust is an estate planning document that was originally designed to not only provide the probate avoidance benefit, but also to avoid or minimize federal gift and estate tax consequences for a married couple.
However, the use of an A/B trust can be somewhat complex and can limit flexibility of trust asset ownership for a surviving spouse in a marriage.
When A/B Trusts were initially developed, the federal estate and gift tax exclusion amount was significantly lower than it is today – for example, in 2005, the exemption amount was $1,500,000, meaning that the value of one’s estate over $1,500,000 (or $3,000,000 for a married couple) would or could be subject to federal gift and estate taxes.
For 2020, the estate and gift tax exemption amount was set at $11,580,000 million per individual, or $23,160,000 for a married couple.
In addition, fairly recent changes to the federal estate tax laws now allow the surviving spouse to “port” or carry over for his or her benefit the exemption amount not used by the deceased spouse. Stated another way, portability of the estate tax exemption means that if one spouse dies without fully using of his or her exemption amount to avoid paying federal estate taxes, then the surviving spouse can make an election to apply that the unused exemption amount and add it to his or her own federal tax exemption amount.
Probate avoidance can be accomplished with the use of any of Revocable Trusts options offered by Standard Legal. So at this point in time, we have decided to not offer an A/B trust to our customers.
The fact that the value of the property owned by the vast majority of Americans does not approach $11,580,000 (or more than $23,000,000 for a married couple), coupled with the fact that portability allows the unused exemption amount upon the death of the first spouse to be carried to the surviving spouse, most married couples can protect all of their assets from federal gift and estate tax issues without using an A/B trust.
Further, Standard Legal believes that married couples owning assets approaching the exemption amounts would be better served seeking legal and tax advice and, perhaps, utilizing a more complex estate plan than pro se document software.