A-B TRUSTS

[Max W]

When spouse B died in 2015, thatt oart of the trust becam irrevocable.

Can a 645 election still be made for that?

TIA

[DANRVAN]

Are you thinking about making the election for the A trust or B trust? 

Also curious why?  There is the fiscal year advantage but the accounting can get sticky.

 

[Max W]

I know I can make it for the A trust, because he died last year.

What I'm not sure about is the B trust, because that wen into effect about 4 years ago. I would like to make the election for both to avoid two returns for each.

As for the accounting, there are only going to be two things, IRD and a house that is being sold.

 

 

[DANRVAN]

The A trust would be the marital trust and the B trust would be the by pass trust which is funded on date of date.  In order to qualify for sect  645  the trust must be revocable at taxpayers death (actually the moment before),  seems like bypass trust would meet that qualification but better to consult legal dept.                                                                                                                                                                                                    

 

[Max W]

It is not a by-pass trust.  Those are used to provide support to the children of the marriage.

The B trust comes into being on the death of the first spouse.  The survivors trust is the A trust.

It is obvious the A trust is elegible for the 645, but is the B trust also eligible, even if the the spouse died several years ago.

There was no activity in her trust and the only thing that trust will receive is half the proceeds of the house.

[DANRVAN]

 

3 hours ago, Max W said:

It is not a by-pass trust. 

An "A - B" trust arrangement is an estate planning tool which creates two trust. 

The "A" trust is a marital trust.  

The" B" trust is a By-pass trust (also know as credit shelter trust) which is funded on D.OD. of the first spouse. 

Whatever you are dealing with, 654 election is only good for the first couple of years so no election if dealing with estate of spouse who died 4 years ago.

                 

[Max W]

The B trust is only a bypass trust if the terms of the trust designated as such.. This one has not.

But, anyhow, you finally got to the answer I was seeking.  Thank you.

[DANRVAN]

2 hours ago, Max W said:

The B trust is only a bypass trust if the terms of the trust designated as such.. This one has not.

But, anyhow, you finally got to the answer I was seeking.  Thank you.

Sorry if I am getting off topic, but the whole point of the B trust is to serve as a by pass, set up prior to death of first of spouse to shelter his/her estate tax exemption.

Why would it be created and funded for any other purpose?

[Max W]

If the B trust only holds non-income producing assets, such as a home, it has nothing to distribute until A dies and then the home is sold.

If it has income producing assets, they can be distributed to the survivor , or children, or whoever the trust designates. Then it would be a by-pass trust. It is all determined by the terms of the trust.

The main purpose of a B trust is to protect the assets of the decedent, so they can be passed on to his/her heirs.  A common situation is where  a divorced, or widowed person with heirs remarries..      It also protects the deceased assets in the event the surviving spouse remarries.  

Another aspect of the A-B trust is that could reduce the estate tax.

 

[Max W]

The B trust can serve other purposes than that of a by-pass trust.

Ir can protect the decedents assets, especially where the heirs of each spouse are different, such as in the case of remarriages.

It is also tax advantaged, as each trust could be subject to a lower tax.

To be a by-pass trust, it has to have distributable income, which can be distributed to anyone the trust designates.  If there are no income producing assets, such as non-rental R.E. it is not a by-pass trust.