A type of trust that allows a married investor to avoid estate taxes when passing assets on to heirs. The trust is structured so that upon the death of the investor, the assets specified in the trust agreement are transferred to the beneficiaries named in the trust . However, a key benefit to this type of trust is that the spouse maintains rights to the trust assets and the income they generate during the remainder of his or her lifetime.
This type of trust is also referred to as an "AB Trust".
In certain circumstances, such as the need to fund healthcare expenses, the surviving spouse may even tap into the principal of the trust assets, not just their generated income. When the surviving spouse eventually dies, the assets are transferred wholly to the beneficiaries without any estate taxes levied. This can amount to significant tax savings and can be very valuable, especially considering that the surviving spouse essentially maintains full use of the assets while they are in the trust anyway.
