Terminating the B-Trust to Reduce Capital Gains
23 Jan 2023
Written by: Maxwell Trubiano
If you or your spouse created an AB Trust years ago, you may want to act now to reduce future tax liability for your spouse and/or children. Due to the substantial increase in the federal estate tax exemption and the introduction of portability, the AB Trust has become unnecessary for many families and may, in fact, result in a larger tax bill.
For those who may have already lost a spouse, you may have assets trapped in a now irrevocable ‘B Trust’ accumulating large unrealized capital gains. These assets trapped in the ‘B Trust’ will be subject to capital gains tax and will not be eligible for a step-up in basis upon a surviving spouse’s subsequent death. If the combined assets of the ‘B Trust’ and the survivor’s separate assets are significantly less than the $12.92 million estate tax exemption amount, there are certain strategies that may be implemented to distribute the ‘B Trust’ assets, or otherwise terminate the ‘B Trust,’ and significantly reduce any potential capital gains tax. Additionally, there may no longer be an estate tax planning advantage of keeping ‘B Trust’ because the survivor may rely on the high estate tax exemption and potentially portability.
If you have an existing AB Trust or have significant capital gains trapped in a ‘B Trust,’ please reach out to Max Trubiano at (216) 472-4612, or by email at email@example.com, to discuss potential strategies to avoid substantial capital gains tax for your spouse and/or children.