When setting up an AB trust, which is also known as a living trust with marital life estate, each spouse names final beneficiaries who will receive the trust's property when the surviving spouse dies. Spouses often name the same people, such as their children, as final beneficiaries, but it's not mandatory. Just remember to set up the surviving spouse as the recipient of the trust property from the AB trust so that legal ownership never fully occurs.

What Are the Surviving Spouse's Rights?

The extent of the rights provided by the trust to the surviving spouse depends on the terms of the trust itself as well as the limits set by the IRS. With maximum rights, the surviving spouse is entitled to all interest or other income from the trust property, use of the property, and may spend the trust property in any amount for his or her health, education, support and maintenance, in his or her accustomed manner of living.

Are There Disadvantages to an AB Trust?

There are several disadvantages to an AB trust including:

  • Use of the trust property may be restricted
  • May require paying legal or accounting assistance to eliminate possible tax consequences when dividing property between the surviving spouse's revocable living trust and the irrevocable marital life estate trust
  • Tax returns must be filed in the name of the trust adding extra work to your normal tax return efforts
  • Separate records must be kept regarding the trust property
  • Tax code provisions may change prior to your trust taking effect, which may force you to revoke the trust and create a new one

Are There Situations Where I Would Not Want an AB Trust?

There are a couple of situations where an AB trust may not be the ideal choice. If one spouse is much older than the other, saving on estate taxes is not a priority when one of the spouses is likely to live a considerable length of time beyond the death of the other spouse.  Additionally, if a marriage consists of children from previous marriages, potential conflicts can arise between the surviving spouse and the children of the deceased spouse from the previous marriage. 

Do I Need a Lawyer Experienced with Estate Administration?

In many situations administering an estate can be very complicated. The person appointed to administer the estate may have tax or legal questions that need to be answered by a lawyer or tax professional. An experienced estate lawyer will know what to do, and help guide you through the legal formalities.