Doubling your Estate Tax Exemption with an ABC Trust
You can use a trust in your estate planning for a variety of reasons, avoiding probate is usually the primary reason. But did you know you a married couple can double their estate tax exemption using a trust?
Consider a married couple with $5 million in assets. When the first of them passes away, the original trust (let’s call it trust A) can move the exemption amount (currently $2 million) into a separate trust (call it trust B), avoiding taxes. When the surviving spouse passes away the remainder of the original trust is passed into a new trust (trust C) and take advantage of another $2 million exemption. This type of cascading trust arrangement is commonly called an ABC trust.
If the surviving spouse had inherited his/her partners assets via a single trust, then all the combined assets are subject to estate tax, with a single exemption when the surviving spouse passes away. With tax rates of 45% as they are currently, an ABC trust would have saved our couple’s estate $900,000 in taxes.
2 Responses to “Doubling your Estate Tax Exemption with an ABC Trust”
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