An ABC trust is a trust established by a married couple that provides for the allocation of assets to three separate trusts to be established upon the death of one spouse.  The A - Survivor's Trust and B - Decedent's Trust are generally the same as in the typical AB trust described above.  The third trust known as a QTIP trust, commonly called a "Marital Trust", generally has similar provisions for the Surviving Spouse as the Decedent's Trust.  However, an election is made on the estate tax return of the first spouse to die that the QTIP trust will qualify for the marital deduction in order that the assets allocated to that trust will be taxed at the death of the second spouse rather than the death of the first spouse.  This allows the assets to ultimately pass to beneficiaries designated by the first spouse but defers the tax on those assets until the later death of the second spouse to die.

              One common use of the ABC trust is to accomplish another tax planning purpose involving maximization of the $1,100,000 exemption from the generation-skipping transfer tax.  This is accomplished by allocating $100,000 of assets to the QTIP trust.  Although the QTIP trust is not taxed until the death of the second spouse for estate tax purposes, it is possible to make a special election that the $100,000 be deemed to have passed from the first spouse to die in order that this $100,000 and the $1,000,000 allocated to the Decedent's trust will comprise the $1,100,000 that may pass to a generation that would otherwise be subject to the 50% generation-skipping transfer tax.  This tax is avoided by allocating the $1,100,000 exemption of the first spouse to die to these two trusts in order that no generation-skipping tax will be payable.

Survivors Trust

Decedents Trust

Marital Trust