Mandatory Trust Allocations.

Ever hear of an A|B Trust? It is a living trust designed to preserve the estate tax exemption amount when the first spouse dies. Without getting into why one might have an A|B Trust, please know that if you *have* an A|B Trust already that when the first spouse dies, the surviving spouse is required to allocate or divide the existing trust assets according to the trust document.

Say the trust document requires that upon the first spouse's death that the trust assets be divided into Trust A and Trust B where Trust A is called the Survivor's Trust and Trust B is called the Exemption Trust. Different trusts call these sub-Trusts different names, but they are the same.

This means following a host of procedures and legal maneuvers to ensure that the  original Trust is  divided into two sub-Trusts. This means that Trust A belongs to the surviving spouse and Trust B belongs to the spouse who died. Trust A is still revocable, but Trust B isn't.  This allocation is mandatory when you read the existing trust document.

It's a complicated thing. This allocation. This division. This A|B Trust. It's hard to explain in a post. The best things to understand are the following:

1. If your estate is worth less than $2 million, which is the current federal estate tax exemption amount, and you have an A|B Trust *and* you and your spouse are alive and well -- it is a good idea to talk to your attorney about restating and amending this Trust to get rid of the A|B component and draft a disclaimer trust that doesn't require this split upon the death of the first spouse. There are caveats though because an A|B Trust works well for blended families.

2. If you have an A|B Trust and have lost your spouse, please see your attorney to determine if an allocation is required and complete the allocation process.

3. If you don't understand how this works, and this post isn't designed to explain it to you, please see your attorney for an in-depth conversation of how these trusts work so you understand.

4. The trust document controls the terms of the Trust and how it works. If you can't sleep, read your Trust and see if it makes sense. Despite the legalese, if you read it -- it just might make sense and you will get it. But in reading it, if you notice something that seems wrong, should be changed or is a mistake outright... see your attorney right away to make the necessary amendments where allowed.

As always, when in doubt, consult with your estate planning attorney.