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Definition: A-B Trust
A-B trusts are used by married couples to minimize incidence of estate tax. The trust forms of both members depositing their assets and appointing a beneficiary other than the two. On the death of one of the spouse, the trust divides into 2, the A trust and the B trust.
The surviving spouse has limited access to the decedent’s trust. On the subsequent death of the surviving spouse, the property further passes on to the beneficiary initially mentioned while constituting the trust. Now this property is not considered part of the surviving spouse’s assets and hence not taxed twice. The "A Trust" is also commonly referred to as the "Marital Trust," "QTIP Trust," or "Marital Deduction Trust." The "B Trust" is also commonly referred to as the "Bypass Trust," "Credit Shelter Trust," or "Family Trust."
For example, when a couple X and Y use an A & B trust, on the death of X, her share in the assets will belong to a irrevocable trust which can be used by Y even though he doesn’t own it. On the death of Y his property as well as X’s property will pass on to initially assigned beneficiary.