Mullen and Iannarone, P.C.
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Tax advantage of AB trusts

New York couples who are married and may have to owe estate tax may want to take advantage of an AB trust. Although their popularity has decreased after Congress passed portability rules, they still can be useful for people who have large estates.

When a spouse dies, estate taxes will be due on the assets detailed in his or her will before they pass to the beneficiaries. To prevent this, each spouse can leave their property to an irrevocable trust. After the first spouse dies, the beneficiaries will receive the assets, but as a condition of the trust, the assets will be used to benefit the surviving spouse, who will not have any legal ownership to the assets. When the surviving spouse dies, the estate, which is not subject taxes as the surviving spouse does not own the property, will pass to the beneficiaries. Establishing an AB trust can make half of a surviving spouse's estate untaxable.

The rights the surviving spouse has over the assets in the trust include the authority to receive income from the assets, use the assets and spend the assets in order to benefit his or her well-being, standard of living, support and maintenance, and education. The power is limited and depends directly on the provisions written for the trust, which are governed by the restrictions of the Internal Revenue Service. The rights of the surviving spouse are also maintained until his or her death, after which the assets in the trust are distributed to the beneficiaries.

An estate planning attorney can often assist clients with reducing estate taxes by suggesting the appropriate type of estate planning tool to use. This can include various types of trusts or carefully planned wills.

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