The Infamous AB Trust

An AB Trust simply designates two types of trusts to be formed on the death of one joint trustor. Trustors are the persons making the trust. These trusts can be named anything the drafter chooses. However to trace and talk about trusts, we lawyers like to refer to the A trust and B trust so that we can follow the events that occur and the results obtained. As an example, suppose the following:

Husband and Wife form an AB trust of their estate. They want, on the death on one of them, to have the property of the deceased spouse preserved and given to the deceased spouses children from a prior marriage if the current spouse does not need the money during his or her lifetime. An AB trust is the perfect vehicle.

The trustors (married couple) create the family trust while alive and it is revocable by both of them during their lifetime. Suppose spouse 1 dies untimely and the estate is worth 5 Million Dollars. Then 2.5 million dollars goes to the surviving spouses trust (we will call it A) and 2.5 Million Dollars goes to the deceased spouses irrevocable trust (we will call it B).

The provisions of the trust can state that the B trust pay to the spouse during her lifetime all the assets and income she needs for her health, education, and support, and then on his or her death pay to the surviving children from a first marriage equally. The A trust can remain revocable and the surviving spouse can use his or her assets as she chooses during her lifetime as well, directing the proceeds to whom ever she desires later in life.

This is an example of an AB trust and is used frequently when an irrevocable trust needs to be created to do what you want on the death of one spouse.