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An A-B Trust is an estate planning structure used by married couples to reduce or eliminate federal estate taxes on wealth transferred to heirs. When the first spouse dies, a single joint trust splits into two separate trusts: Trust A, which holds the surviving spouse's assets, and Trust B, which holds the deceased spouse's share up to the federal estate tax exemption amount. As of 2025, the federal estate tax exemption stands at $13.99 million per person, which means a couple using an A-B Trust structure can potentially shield nearly $28 million from estate taxes.
Trust A, also called the Marital Trust or Survivor's Trust, is revocable. The surviving spouse controls it fully, can withdraw from it, and can name new beneficiaries. Trust B, also called the Bypass Trust or Credit Shelter Trust, is irrevocable the moment the first spouse dies. Think of Trust A as the living spouse's checking account and Trust B as a locked savings vault the children ultimately inherit.
The surviving spouse can still receive income from Trust B and, in certain cases, access its principal for health, education, maintenance, and support. But the assets inside Trust B are never included in the surviving spouse's taxable estate. When the surviving spouse later dies, only Trust A's assets face potential estate taxes.
A-B Trusts were originally designed to solve one problem: before 2011, a married couple could not combine their individual estate tax exemptions unless they used an A-B Trust structure. The law changed with the introduction of portability, which allows a surviving spouse to claim the unused exemption of the deceased spouse by filing a timely estate tax return with the IRS.
With portability now permanent under federal law, most couples no longer need an A-B Trust to protect both exemptions. If a couple's combined estate is below $13.99 million in 2025, there is little federal tax benefit to splitting the trust at all. Most couples in this range simply let the surviving spouse claim the portability election instead.
The current estate tax exemption levels come from the Tax Cuts and Jobs Act of 2017, which expired on December 31, 2025. If Congress does not act, the exemption is expected to drop to approximately $7 million per person starting January 1, 2026, adjusted for inflation from a 2010 baseline. The federal estate tax rate is also expected to rise from 40% to 45%.
For couples with estates above $14 million, an A-B Trust becomes relevant again after 2025. The drop in exemption levels means more estates will face federal estate taxes, and the A-B structure provides a reliable way to use both spouses' exemptions without depending solely on portability.
Even when estate taxes are not a concern, an A-B Trust serves other purposes. It protects Trust B assets from the surviving spouse's future creditors. It also prevents a surviving spouse from changing the beneficiaries of the deceased spouse's share, which matters in blended families or situations involving children from a prior marriage. The deceased spouse's instructions remain legally binding through the irrevocable Trust B.
There is a real downside to the A-B Trust that many couples overlook. Assets inside Trust B do not receive a "step-up in basis" when the surviving spouse later dies. A step-up in basis resets an asset's cost basis to its market value at the time of death, eliminating any capital gains taxes on appreciation that occurred during the deceased person's lifetime.
Because Trust B assets are not included in the surviving spouse's estate, the heirs inherit those assets at the original cost basis from when the first spouse died. If the surviving spouse lives for many more years and those assets appreciate significantly, the heirs could face a large capital gains tax bill when they eventually sell. For many families, that capital gains cost now outweighs the estate tax savings an A-B Trust was supposed to provide.
| A-B Trust | Portability Election | |
|---|---|---|
| Requires estate split at first death | Yes | No |
| Step-up in basis for Trust B assets | No | Yes (full estate) |
| Protects assets from surviving spouse's creditors | Yes (Trust B) | No |
| Locks in deceased spouse's beneficiary wishes | Yes | No |
| Requires separate tax returns after first death | Yes | No |
| Available in states without portability | Yes | No |
| Administrative complexity | High | Low |
If your estate plan is more than a decade old, there is a good chance it contains A-B Trust language that no longer reflects your financial situation or current tax law. Estate planning attorneys routinely recommend reviewing any trust created before 2012, since the tax landscape has changed significantly since then.
A-B Trusts remain valid tools for high-net-worth couples, blended families, and people in states that do not offer portability for their own state-level estate tax exemption. For everyone else, the decision to keep, update, or dissolve an A-B Trust should be made in consultation with a qualified estate planning attorney who can weigh your specific estate value, state laws, and family circumstances.
Setting up an A-B Trust involves attorney fees and ongoing administrative costs. After the first spouse dies, both Trust A and Trust B require separate annual tax filings. The trustee must also properly document asset allocations between the two trusts at the time of the first death, which requires an appraisal of the estate's assets.
Maintaining two separate trusts indefinitely adds complexity. If the couple's estate is not large enough to benefit from the double exemption strategy, these administrative costs represent pure overhead with no offsetting tax savings.
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