A-B Trust
A living trust with an A-B provision doubles the amount of an estate that married couples can exempt from taxes. When the first spouse dies, the assets of the survivor are transferred to Trust A, and the assets of the deceased spouse go to Trust B. Each trust becomes a taxable entity entitled to the unified credit exemption (currently $1 million) and is exempt from probate. Without a properly structured bypass trust, the couple could use the estate tax exemption only once.

One potential way to avoid this problem is to own a life insurance policy inside an irrevocable life insurance trust so that the death benefit does not become part of your taxable estate.³ Your heirs can use the proceeds to help pay any estate taxes, perhaps eliminating the need to sell assets.

Most people would agree that they would rather leave the bulk of their estate to their heirs than to the government. With a trust, you may be able to shield more of your assets from taxes and the often costly probate process.

1) Nolo.com and SaveWealth.com
2) The use of trusts involves a complex web of tax rules and regulations. You should consult with an experienced tax, legal, or estate planning professional before implementing such strategies.
3) The cost and availability of life insurance depend on factors such as age, health, and the type and amount of insurance purchased. Before implementing a strategy involving life insurance, it would be prudent to make sure that you are insurable by having the policy approved. As with most financial decisions, there are expenses associated with the purchase of life insurance. Policies commonly have mortality and expense charges. In addition, if a policy is surrendered prematurely, there may be surrender charges and income tax implications.