Portability is now a permanent part of the estate tax law. Nonetheless, there are many advantages of A-B trust planning. Which of the following is NOT an advantage?

Portability is now a permanent part of the estate tax law. Nonetheless, there are many advantages of A-B trust planning. Which of the following is NOT an advantage?

• A. Appreciation out of the surviving spouse's estate
• B. Preservation of the full GST exemption
• C. Asset protection for the surviving spouse
• D. Decreased income tax for trust income retained in the trust

Answer: (B)

A-B trust planning uses a bypass trust funded at the first spouse’s death to capture that spouse’s remaining estate tax exemption. That trust grows outside the surviving spouse’s estate, helping to keep assets away from second-death taxes, and it also offers asset protection for the surviving spouse because those assets aren’t fully within their control. Portability concerns the transfer of unused estate tax exemption between spouses, but it does not apply to the generation-skipping transfer (GST) exemption. In a typical A-B plan, some or all of the GST exemption may be used to fund the bypass trust, and you don’t end up preserving the full GST exemption for later, unrestricted use. That’s why preservation of the full GST exemption is not an advantage of A-B trust planning.

A-B trust planning uses a bypass trust funded at the first spouse’s death to capture that spouse’s remaining estate tax exemption. That trust grows outside the surviving spouse’s estate, helping to keep assets away from second-death taxes, and it also offers asset protection for the surviving spouse because those assets aren’t fully within their control. Portability concerns the transfer of unused estate tax exemption between spouses, but it does not apply to the generation-skipping transfer (GST) exemption. In a typical A-B plan, some or all of the GST exemption may be used to fund the bypass trust, and you don’t end up preserving the full GST exemption for later, unrestricted use. That’s why preservation of the full GST exemption is not an advantage of A-B trust planning.