Basically there are two types of revocable living trusts for married couples. The first type is called a simple or basic trust. With a basic trust, while both spouses are living, they continue to manage the estate together as they had before creating the trust. Upon death of one spouse, the surviving spouse has sole and absolute control over the estate. When the second spouse dies, the assets are distributed to their heirs as directed in the trust.

The single trust is advisble for husband and wives whose estates mee the following conditions:

  1. The combined estate is under the estate tax exemption (Currently $5,125,000 in 2012) and will never exceed the tax exemption.
  2. The spouses are willing to allow the surviving spouse to have full control and unrestricted use of the trust assets after the death of one spouse.

If the estate is over the tax exemption, or could grow past it, or if the spouses want to put restrictions upon the estate once one has died, then the couple would need to go through advanced estate planning to make sure they minimize taxes, and use an A-B Trust (although if an estate is particularly large, additional strategies would be put in place).

An A-B Trust is a means of dividing a “husband and wife” estate into two trusts upon the death of one spouse. The main purpose of using the this type of trust is to prevent losing any portion of the federal estate tax exemption when the first spouse dies.

For example, let’s assume that a married couple have an estate valued at $10,000,000. If the husband dies, leaving the estate to the wife and the wife dies after, leaving the estate to the children, the children will pay taxes on the amount over the exemption.

If, however, upon the husband’s death the estate was split into A-B Trusts, this way each would be able to pass $5,125,000 (2012 estate tax exemption) to the children tax free, with no taxes due at all.

Photo by Ernst Vikne