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This is a trust that is held for the benefit of successive generations for a very long time. The trustee holds the assets with a direction to pay the income to children, then grandchildren, then great grandchildren and so on.

Since each person only has a life interest in the trust the trust assets would not be in his or her taxable estate. The trust would be subject to generation-skipping taxes so the value of such trusts on creation is usually limited to the exemption under the generation-skipping tax.

In the past the duration of a trust was limited by the rule against perpetuities. A trust could last only so long as a life in being upon creation of the trust plus 21 years. The “life in being” refers to all the current beneficiaries. Certain states now allow you to opt out of this rule.

For more information on creating an Illinois Dynasty trust or other type of trust contact Chicago estate planning attorney Don Thompson.

The terms of an A & B trust provide that after the death of the person who created the trust the assets will be split between two sub-trusts, the A Trust and the B Trust. The A Trust benefits the surviving spouse. The B Trust supposedly benefits the children. A formula is set forth in the trust to determine how the assets are split. The reason for this device is to minimize estate taxes by placing the amount upon which there is no tax in the B or children’s trust. This trust is structured so that when the surviving spouse subsequently dies the children’s trust is not in his or her taxable estate. Everything else goes to the A Trust which is structured so as to qualify for the marital deduction. The A Trust will be in the surviving spouse’s estate when he or she dies later.

By using this type of trust parents can pass double the tax free amount to their children. If the first to die merely left everything to the surviving spouse then only one tax free amount would pass to the children on the death of the surviving spouse. Everything else would be subject to tax.

Naturally this type of device is useful only for taxable estates. And it works only if the assets are split between both spouses so that the first to die has the tax free amount to pass to the children’s trust.

The surviving spouse can be the income beneficiary of the children’s trust.

The A Trust is often called a marital trust and the B Trust is often called a family trust.

When the surviving spouse’s rights to the A Trust are limited to income and the executor of the estate is given an option to elect how much of the trust will be used for the marital deduction, it is called a Q-Tip Trust.

Contact Chicago wills and trusts lawyer Don Thompson today for further information about setting up an A-B trust.

This allows the deductible gift to the surviving spouse to be made in trust so a trustee can manage the investments. The tax law provides that the gift, while not absolute, still qualifies for the marital deduction if the spouse must get all the income and has the power to say who gets the money remaining in the trust at his or her death. This is usually used together with a family or credit shelter trust which takes advantage of the credit to pass $3,500,000 tax free. Remember the spouse can get all the income from that trust too, but cannot have the power to say who gets the remaining assets of the family trust on his or her death. That power would cause the family trust assets to be in the surviving spouse’s taxable estate.

NOTE: There currently is no Federal or state estate tax or generation skipping tax. The gift tax is still in effect. Whether or not the estate and generation skipping taxes will be reinstated this year is not known. Many people expect that they will be reinstated, but what will happen is not known. What the rates and exemptions will be if the taxes are reinstated is also not known. Click here for more.

Contact Chicago estate tax lawyer Don Thompson for help with a marital deduction trust in Illinois.

Persons with larger estates should review their estate plans at a set time each year. Estate plans are prepared on the basis of certain things. As these things change, so should the plan. Births, deaths, changes in marital status, changes in law, changes in residence, changes in wealth, changes in the composition and titling of one’s assets are all things which can require estate plan changes.

NOTE: There currently is no Federal or state estate tax or generation skipping tax. The gift tax is still in effect. Whether or not the estate and generation skipping taxes will be reinstated this year is not known. Many people expect that they will be reinstated, but what will happen is not known. What the rates and exemptions will be if the taxes are reinstated is also not known.

To learn further about planning your Chicago, IL estate contact Chicago estate planning lawyer Donald Thompson.