Structure of a basic estate plan using "A" and "B" trusts Example 1 above demonstrated a bad estate plan - a lot of money was lost to taxes. Example 2 offered some improvement. Two problems were apparent however. Dad died first, and the children got the money - it wasn't made available to Mom. Secondly, the kids may not have been mature enough to handle the resources left them. These problems can be treated using trusts to take maximum advantage of the marital deduction and credit equivalent so as to minimize Uncle Sam's share of the estate, and also to provide for asset management for children. The "B" or "Bypass" trust Here's how it works: First we segregate an amount of assets into something called a "B," or "by-pass" trust. This trust will contain the credit equivalent of $1,000,000 (rising to $3,500,000 in 2006). This trust functions as sort of a "safety net" trust for the surviving spouse, keeping "B" trust assets apart from the surviving spouse's estate and "bypassing" taxation in his or her estate - thus, the trust name. A surviving spouse can enjoy the income from the "B" trust, and will be supported by the principal of the trust, if the need arises. On his or her death, assets remaining in the "B" trust pass to children free of death taxes - even though the principal of the trust may have grown considerably. The "A" or "marital deduction" trust The other trust, or "A" trust will use the rule that allows an unlimited amount of money to pass to or for the benefit of a spouse tax free (thus, this trust is also called the "marital deduction trust"). It will contain the balance of the spouse's assets over and above the $1,000,000 that went into the "B" trust. The "A," or "marital deduction trust" can be structured several different ways. Sometimes it contains a provision that gives the surviving spouse access to all of the trust's assets. As such, the trust is merely used as a management devise. Here is an example of such a trust: Assume a couple with $3,000,000, equally balanced with $1,500,000 in each of their revocable living trusts: In the example, the husband dies first in 2004. The husband's trust will now subdivide, placing about $1,000,000 to the "B" trust and about $500,000 to the "A" trust: 
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