How to Separate a Living Trust Into A & B
An A-B living trust is typically utilized by married couples. One spouse is represented by A and the other spouse is represented by B. The purpose of using an A-B living trust, as opposed to a standard living trust is to protect all your assets once one spouse dies and to potentially help your beneficiaries avoid paying estate taxes. The laws regarding estate taxes are constantly changing, so there's no well to tell how much benefit your beneficiaries will receive from the A-B living trust, but it at least gives some chance of not paying estate taxes or not paying as much in estate taxes.
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Instructions
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Understand what will happen when one spouse dies if you change your living trust to an A-B living trust. If you decide to split your assets in half, the assets contained in the trust that belong to the deceased spouse are not given to the living spouse. This means that if you outlive your spouse, the assets in the B portion of the trust become irrevocable. In other words, the trust cannot be changed. You can live in the property and spend the profits made, but you can't change the beneficiaries of the trust, add assets to it or take assets out of it. When you die, your trust, the A portion, and your spouse's trust, the B portion, are transferred to the beneficiaries separately, which is what gives the potential for saving on estate taxes.
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Decide how much of your assets to transfer to the A portion of the living trust and how much to transfer to the B portion of the living trust, as well as which spouse gets A and which gets B. Most married couples will split the assets in half. However, in certain situations, such as a terminal illness may make you decide to leave more than half to the spouse that is more likely to survive longer. Also, one spouse may be more financially responsible than the other, such is the case with a gambling problem. In this case, the more responsible spouse may receive the larger half. This way, the irresponsible spouse can't deplete the couple's assets after the responsible spouse dies.
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Meet with your lawyer to officially separate your living trust in A and B. Your living trust will need to be redrafted by your lawyer to include the new provisions that you decided upon with your spouse.
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Sign the living trust. Both you and your spouse need to sign you're A-B living trust once it's completed. Your signatures make the trust legal and valid. You should always sign your living trust after any changes are made.
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References
- Photo Credit Married couple feelings image by Oleg Kulakov from Fotolia.com
