Are AB Trusts a Thing of the Past?

December 23rd, 2010
by Portico Wealth Advisors

Up until last Friday, those “fortunate” enough to pass-on in 2010 faced no estate taxation (although capital gains were still a factor), while those passing in 2011 and beyond were confronted with a return to the year 2000, and the associated estate tax exemption of $1MM. However, the Tax Relief, Unemployment Insurance Reauthorization, and Jobs Creation Act of 2010 has changed all that by bringing much needed reform to our seemingly topsy-turvy set of estate tax laws.

Through 2012, the estate tax exemption for individuals has been set at $5MM per person and the top estate tax rate has declined to 35%. This means that a couple, using both of their exemptions, can now shelter up to $10MM of their estate from taxation. Also included in the bill is the concept of “exemption portability.” Portability refers to the idea that, should an individual’s estate be unable to use the entirety of their $5MM exemption, their surviving spouse retains the rights to apply the remainder to his or her own estate.

Previously, exemptions were not portable, which gave rise to the creation of AB trusts as a means of preserving them. With the new portability provision in place, there is a great deal of talk about the potential obsolescence of the AB trust structure. However, as Julie Garber of points out, there are still several reasons why AB trusts will likely persist.