Hello.
First of all, I must point out that Google Answers provides general
information. Google Answers is not a substitute for professional
legal advice and should in no way be considered as such. No
warranties are expressed or implied. If you're having trouble
interpreting your trust, the best course of action would be to consult
with an attorney.
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In a nutshell, the way that an AB trust works is that when the first
spouse dies, the couple's property is divided into the deceased
spouse's Trust ("Trust A"; also known as a "credit shelter" or
"bypass" trust) and the Survivor's Trust (e.g., "Trust B"). The idea
is that when the SECOND spouse dies, only Trust B will count as part
of his/her gross estate for estate tax purposes. Trust A will not be
subject to estate taxes when the surviving spouse dies.
source: "Combating Estate Taxes" by Prudential.com
http://www.prudential.com/productsAndServices/0,1474,intPageID%253D1350%2526blnPrinterFriendly%253D0,00.html#Marital%20Trusts
Also see: "The AB Credit Shelter Trust" by Wachovia.com
http://www.wachovia.com/wealth/page/textonly/0,,507_650_1704_1710,00.html
The "catch" is that the surviving spouse cannot have unlimited access
to Trust A.
"Allowing Surviving Spouse Unlimited Access to Trust
Often, the surviving spouse serves as trustee of a bypass trust. In
this circumstance, the trust must limit the surviving spouse's access
to principal to an ascertainable standard such as "health, education,
support, or maintenance." If the surviving spouse is capable of
invading principal beyond this ascertainable standard, he or she is
deemed to possess a general power of appointment under IRC section
2041(b), and trust assets are included in his or her estate at death."
source: CPA Journal Online: "AVOIDING ESTATE PLANNING MALPRACTICE"
http://www.nysscpa.org/cpajournal/1997/0697/features/970601f1.htm
The relevant law is Internal Revenue Code Section 2041.
http://caselaw.lp.findlaw.com/casecode/uscodes/26/subtitles/b/chapters/11/subchapters/a/parts/iii/sections/section_2041.html
" The term ''general power of appointment'' means a power which is
exercisable in favor of the decedent, his estate, his creditors, or
the creditors of his estate; except that -
(A) A power to consume, invade, or appropriate property for the
benefit of the decedent which is limited by an ascertainable standard
relating to the health, education, support, or maintenance of the
decedent shall not be deemed a general power of appointment."
source: Findlaw.com: "IRC Section 2041. Powers of appointment."
http://caselaw.lp.findlaw.com/casecode/uscodes/26/subtitles/b/chapters/11/subchapters/a/parts/iii/sections/section_2041.html
Thus, to answer your question...
If the survivor's power to withdraw funds from the decedent's trust is
NOT limited to some ascertainable standard relating to the health,
education, support, or maintenance, then the Internal Revenue Service
WILL consider the decedent's trust to be part of the surviving
spouse's gross estate. As a result, the decendent's trust will NOT
qualify as being exempt from estate taxes when the surviving spouse
dies.
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search strategy:
"AB trust"
"ab credit shelter"
"bypass trust", 2041
I hope this helps. |
