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A simple probate-avoidance living trust has no effect on taxes. However, more complicated living trusts can be used to significantly reduce the federal estate tax bill for people who have large estates.

One example of a tax-saving living trust is designed primarily for married couples with children. This type of trust is commonly called an AB trust, credit shelter trust, exemption trust, marital life estate trust, and marital bypass trust. With an AB trust, each spouse leaves property in the trust to the other for life, and then to the children. An AB trust can save up to hundreds of thousands of dollars in estate taxes.