ABC TRUST ARRANGEMENT
Back to GlossaryDefinition
A common trust arrangement that utilizes a bypass trust (the B Trust), a GPOA Trust (the A Trust), and a QTIP Trust (the C Trust) to provide the necessary support to a surviving spouse while maximizing the use of the decedent’s applicable estate tax credit and providing the decedent the ability to determine the ultimate beneficiary of most of his assets at the death of the surviving spouse.
Summary
An ABC Trust Arrangement is a sophisticated estate planning strategy that splits a deceased spouse's assets into three separate trusts (A, B, and C) to minimize estate taxes while providing financial support to the surviving spouse. The 'A Trust' (GPOA Trust) gives the surviving spouse general power of appointment over assets, the 'B Trust' (Bypass Trust) utilizes the deceased's estate tax exemption, and the 'C Trust' (QTIP Trust) provides income to the surviving spouse while allowing the deceased to control who ultimately inherits those assets. This arrangement maximizes tax benefits while balancing the needs of the surviving spouse with the deceased's wishes for final distribution.
Usage Context
This term is crucial when studying advanced estate planning strategies, particularly in courses covering estate taxation, trust planning for high-net-worth individuals, and sophisticated wealth transfer techniques for married couples.
Common Confusions
- Students often confuse which spouse has control over which trust
- Mixing up the tax benefits of each individual trust component
- Not understanding that this is one coordinated strategy using three trusts, not three separate strategies
- Confusion about when the estate tax savings actually occur (at first death vs. second death)
