What happens to the participating spouse's exclusion amount in a standard AB trust?

In a standard AB trust, the participating spouse's exclusion amount is typically placed into the B trust, while any excess amount beyond the exclusion limit is allocated to the A trust. This arrangement serves to maximize the estate tax exemption available to the deceased spouse, minimizing taxes on the estate as a whole.

The B trust is specifically designed to benefit from the deceased spouse's exclusion amount, effectively shielding that portion of the estate from taxation upon the death of the surviving spouse. Any assets exceeding the exclusion amount are placed into the A trust, which allows for flexibility in management and distribution to the surviving spouse.

This structure plays a critical role in estate planning, particularly for married couples looking to preserve wealth for their heirs while minimizing the tax implications upon the death of the first spouse. The distinction between the A and B trusts helps ensure that the full benefits of the exemption are utilized efficiently.