My wife and are looking into setting up a trust for our assets.

In talking with a local lawyer, he recommended an A/B trust. I see some mixed details on this doing a little googling and just curious what the board thinks.

We're basically an upper middle class household, one kid, another on the way, looking to protect our estate and assets and take care of our children best we can.

Ultimately, have on the horizon possibly putting together a business LLC and an NFA if that matters.

From my understanding, AB trusts typically make sense if you're well over the estate tax exemption and looking to minimize taxes. The joint exemption is up to like $22 million now.

*not an attorney, not providing legal advice, etc... but heavily involved with the estate planning process for many families.

The benefit of a/b has greatly been lessened with recent tax law changes. However, there are situations were it makes a lot of sense to consider. The major one is a blended family where you want to protect certain assts for kids from a prior marriage. Another would be to gauge how hot your spouse is and/or how bad their decision making is. I say that in jest, but seriously if something happened to one of you, would the other likely remarry? If so, an a/b structure could make sense if kids or other beneficiaries wouldn't be as protected with one of you out of the picture and new mommy or daddy influecening decisions going forward.

Another major consideration is weighing the potential benefit of the marital protections an a/b structure offers versus the possibility of 2 basis step ups instead of 1.

Also, is the NFA you refer to a "gun trust"? I've read about those, but never seen or even discussed one. Would love to hear a little bit about that if correct and you don't mind sharing.

Casey TableTennis said:

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Also, is the NFA you refer to a "gun trust"? I've read about those, but never seen or even discussed one. Would love to hear a little bit about that if correct and you don't mind sharing.

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Yes.

The way I figure it, the Dems are pining hard to go after gun rights, including forcing more scrutiny on gun transfers (even within the family). Too much noise around this topic for my liking. Don't have anything special per say but do want to maintain control of what we have within the family, and ensure they go to the right individuals I know I can trust.

AG 2000' said:

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Casey TableTennis said:

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Also, is the NFA you refer to a "gun trust"? I've read about those, but never seen or even discussed one. Would love to hear a little bit about that if correct and you don't mind sharing.

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Yes.

The way I figure it, the Dems are pining hard to go after gun rights, including forcing more scrutiny on gun transfers (even within the family). Too much noise around this topic for my liking. Don't have anything special per say but do want to maintain control of what we have within the family, and ensure they go to the right individuals I know I can trust.

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A gun trust is just a simple trust with settlor, trustee(s), and beneficiaries. I like them for NFA items because of custody and control simplification across multiple people, but a more complex trust would just roll them in like other assets. No sense in having two trusts just because you want a gun trust.

I've created several gun trusts for members of the Outdoor Board.

Huell Babineaux said:

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From my understanding, AB trusts typically make sense if you're well over the estate tax exemption and looking to minimize taxes. The joint exemption is up to like $22 million now.

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Yep, for a married couple that is correct. If you do go this route make sure the decedents trust (the B trust) is what is referred to as a QTIP (quaified terminal interest property) trust. This gives the surviving spouse rights to the income from the trust but the beneficiaries the trust assets upon the death if the second spouse. The B trust will have to file 1041's with the IRS and issue K-1's when it becomes operable. The A trust for the surviving spouse can function as a grantor trust and the taxable income reported to surviving spouses SSN.

On the surface, this seems overly complex unless you have some investments, mineral or land holdings which likely put you over the over the estate tax threshold.

My grandparents set up this type of trust back in the early 90s. The estate tax limits were vastly different, I think the exemption was $600k and 55% tax rate. Due to the unpredictability of Congress and who controls the legislation, if you have several million in assets it might be a good idea to set up the trust.

I've got an A/B trust. I wouldn't worry too much about whether you are at the limit, or not. Limits that can be raised can also be lowered.

Sit down with a "good" estate planning attorney. Explain your situation and listen to the recommendations. We have a trust, a dual benefit significant life insurance policy that's expensive but operates outside of the estate laws and automatically generates trusts for each kid upon my death and my wife's death. Our annual premium is essentially the same as the tax free gift amount to the kids. This places the proceeds outside of inheritance taxes. The trusts that are generated can't be touched by the kids' spouses.

We also have all assets inside an LLC for some asset protection. There are some other strategies that we will execute in the future involving a DAF or foundation to further shield inheritances. The estate planning attorney is key in navigating this. They cost a few thousand, but it's worth it.