Which funding method funds the marital trust last, with the balance directed to the credit shelter trust?

Which funding method funds the marital trust last, with the balance directed to the credit shelter trust?

• A. Reverse marital formula
• B. Up-front marital formula
• C. Fractional share formula
• D. Pecuniary share

Answer: (A)

When funding an AB trust at the first death, the way assets are split between the marital trust and the credit shelter (bypass) trust is determined by the funding formula. The method in which the credit shelter trust is funded first, up to the deceased spouse’s unused estate tax exemption, and the remaining assets go into the marital trust, is the reverse marital formula. This approach leaves the marital trust to be funded last. Why this works: by funding the credit shelter trust first, you maximize use of the deceased spouse’s exemption to shelter assets from estate tax. The remaining assets then go to the marital trust, which supports the surviving spouse and still qualifies for the unlimited marital deduction. In contrast, other formulas allocate assets differently (for example, funding the marital trust first or using fixed fractions or dollar amounts), which can lessen the use of the exemption or change how much passes tax-free to the bypass trust versus the survivor.

When funding an AB trust at the first death, the way assets are split between the marital trust and the credit shelter (bypass) trust is determined by the funding formula. The method in which the credit shelter trust is funded first, up to the deceased spouse’s unused estate tax exemption, and the remaining assets go into the marital trust, is the reverse marital formula. This approach leaves the marital trust to be funded last.

Why this works: by funding the credit shelter trust first, you maximize use of the deceased spouse’s exemption to shelter assets from estate tax. The remaining assets then go to the marital trust, which supports the surviving spouse and still qualifies for the unlimited marital deduction. In contrast, other formulas allocate assets differently (for example, funding the marital trust first or using fixed fractions or dollar amounts), which can lessen the use of the exemption or change how much passes tax-free to the bypass trust versus the survivor.