There are many objectives in preparing an estate plan: reduce taxes, avoid probate, protect minor children or other incapacitated beneficiaries, creditor protection, etc. These objectives are based on the guiding principles of putting a person’s wishes in written enforceable format.
An AB Trust is a very common type of trust, typically used by a married couple, for the purpose of making the wishes of the spouse who is first to pass away irrevocable upon the death of that spouse. The “B” Trust becomes irrevocable upon the death of the first spouse, and the assets allocated to it generally are used for the support and maintenance and health expenses of the surviving spouse, with the balance being distributed to named beneficiaries upon the death of the surviving spouse.
This structure is incredibly vital under the following situations: (1) marriages where either spouse has children from previous relationships, (2) where re-marriage of the surviving spouse is a consideration or even a possibility, (3) where there is any possibility of exploitation of a vulnerable elderly person or misappropriation of financial assets. When spouses create an AB Trust, it often is possible to recover misappropriated assets or unauthorized “gifts” without having to prove vulnerability or incapacity. The use of an AB Trust can go a long way in observing the guiding principle of making a person’s wishes enforceable.