The basic concept of the AB will containing a unified credit trust is
to not lose the benefit of the unified credit of the spouse that is
first to die. Remember that you can pass any amount to your spouse
without estate tax but you can only pass the unified credit amount
($2,000,000.00 in 2008, 3,500,000.00 in 2009, unlimited in 2010, and
returning to $1,000,000.00 in 2011 and beyond, but look for legislation
in 2009 to change the law regarding 2010 and beyond) to others including your children.
The natural inclination of most people is to pass all or most of their
estate to their spouse and then to their children if their spouse
predeceases them. However, a problem arises when the first to die
spouse dies and leaves all that spouse has to the other spouse.
The money and property goes to the surviving spouse estate tax free.
But when the second to die spouse dies then that person's estate
contains the entirety of the couple's joint estate. That estate
benefits from the unified credit of the second to die spouse but the
unified credit of the first to die spouse has been lost because the
entire estate of the first to die spouse passed pursuant to the
unlimited marital credit and became incorporated within the estate of
the second to die spouse.
The solution to the problem outlined above is to allow the surviving
spouse an election to put as much of the estate of the first to die
spouse as the survivor wishes into a unified credit trust after the
death of the first. The unified credit trust by its terms benefits
the surviving spouse during the life of the surviving spouse and the
children after the death of the survivor. See our Illustration
of the very substantial tax savings that can be realized from using a
unified credit trust.