For many years in Arizona, the A-B Trust (one that splits at death of first spouse) has been a commonly-used base for the family estate plan in this community property state.
Does the recent tax law change spell the end of that commonly-used device for single-marriage families with a net worth of $5 million or under since the amounts excludable from federal estate tax have now been raised to $5 million per person—at least until the end of 2012?
Some pundits say it may and that the “single pot” trust will become the basic plan for many families in that $5 million or less asset range going forward.
But I am not so sure. While that view may be true strictly from a federal estate tax standpoint, there may be other reasons to continue to use the A-B trust concept, particularly with community property involved.
Consider this: If a single pot trust is used, the surviving spouse will have a far greater say in where the family property winds up after he or she dies, which may not be even close to the ultimate disposition that both spouses intended and agreed to when the documents were first drafted and executed. The surviving spouse could remarry or have a falling out with one or more children and divert all or a substantial part of the remaining property controlled by the survivor in a totally different direction.
The A-B Trust arrangement will still permit division of the community property into two halves, leaving one-half to the survivor’s trust (Trust A) and one-half to decedent’s trust (Trust B). In that manner the decedent’s half, which is often left to the couple’s children upon the survivor’s death, would still go to the children on the surviving spouse’s death even though the surviving spouse may divert his or her half in a different direction.
Michael W. Margrave