4 Jun

Under current law spouses can transfer between them up to $10M estate tax-free. But this may all change because the current law expires 12/31/12. The $ 10M exemption may drop to $ 1M.  Accordingly we recommend that a married couple consider having prepared what is known as an A-B revocable living trust.

Here is how it works. With an A-B trust when the first spouse dies, all of the assets in the estate are allocated to two separate trusts. The decedent’s share is transferred to the B trust while the survivor’s share goes into the A trust. There is NO ESTATE tax payable on the assets placed in the B trust because of the marital deduction on transfers between spouses. The surviving spouse meanwhile can draw income from the B trust as needed to live on and even draw down the principal if needed for health reasons and major life necessaries. When the surviving spouse passes, the A trust assets and B trust assets transfer to the remaining named beneficiaries (usually the children). The estate tax however is only imposed on the A trust assets but NOT the value of the B trust.

This means that if an estate has a total value of $ 4M (the estate value may include the home, life insurance, ownership in a business, stocks, bonds, gold, real estate investments etc), by having created an A-B trust, at least $ 2 M would be SHELTERED from estate tax. Compare: If no A-B trust was created, and assuming the marital exemption drops to $1 M January 1, 2013, up to $ 3M of the estate value could be subject to estate tax. Depending on what tax rate is in effect at death, the amount of estate tax could be sizeable. 

Estate tax planning for married couples through a trust is essential to preserving their estate for children and loved ones particularly given the uncertainty of what Congress will do between now and 2013 with regard to the current estate tax laws.


Stephen J. Gross is a real estate, business, and trusts and estates attorney located in West Los Angeles . A free 30 minute phone consultation is offered to Pages LA readers. We can be reached at 310- 652 8090 or please visit

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