Estate planning in the United States can often feel like navigating a legal and financial maze—especially with complex terminology and evolving federal tax laws. For decades, one strategy stood out as a go-to solution for married couples with sizable estates: the A-B Trust. This powerful tool was widely used to minimize or eliminate federal estate taxes and preserve wealth across generations.
However, with the introduction of portability in 2011—a significant change in U.S. estate tax law—many families and advisors are now questioning whether the A-B Trust still holds the same value. Has it become outdated, or does it still play a vital role in modern estate plans?
Let’s peel back the layers of this once-indispensable estate planning technique and explore whether the A-B Trust is still relevant for American families today.
What is an A-B Trust?
An A-B Trust is a joint revocable trust created by a married couple in the U.S. to minimize or eliminate federal estate taxes after one spouse dies. Upon the first spouse’s death, the trust splits into:
- Trust A (Survivor’s Trust): Remains under the control of the surviving spouse.
- Trust B (Bypass or Credit Shelter Trust): Holds the deceased spouse’s share of the estate, up to the estate tax exemption amount.
This split allows each spouse to use their individual federal estate tax exemption. The assets in Trust B bypass the surviving spouse’s taxable estate, protecting them from future estate taxation.
Why the A-B Trust Was So Important Before Portability
Before 2011, if a married couple didn’t use an A-B Trust, the first spouse’s federal estate tax exemption could be lost. This meant potentially millions in unnecessary estate taxes. The A-B Trust became a legal workaround to ensure both spouses fully used their exemptions.
What Changed? – Portability Explained
In 2011, the IRS introduced portability, allowing a surviving spouse to inherit the unused portion of their deceased spouse’s estate tax exemption. This simplified the process and reduced the necessity of an A-B Trust in many cases.
For 2024, the federal estate tax exemption is $13.61 million per individual, meaning a married couple can transfer up to $27.22 million without estate taxes using portability.
Still, many estate planners recommend A-B Trusts for their non-tax benefits.
How an A-B Trust Works (U.S. Structure)
| Trust Element | Trust A (Survivor’s Trust) | Trust B (Bypass Trust) |
|---|---|---|
| Ownership | Surviving spouse | Separate legal entity (not survivor’s estate) |
| Control | Full control by surviving spouse | Trustee-managed (survivor may have limited role) |
| Taxable in Estate? | Yes | No |
| Revocable? | Yes | No (after first death) |
| Primary Purpose | Ongoing management for survivor | Preserve deceased spouse’s exemption |
| Distribution | Flexible | Fixed, usually for children or heirs |
Benefits of an A-B Trust in the U.S. Today
Even with portability, A-B Trusts offer several strategic benefits for U.S. residents:
- ✅ Creditor Protection: Trust B offers protection from lawsuits, creditors, or remarriage complications.
- ✅ Control of Inheritance: Ensures assets go to designated heirs, even if the surviving spouse remarries.
- ✅ Asset Growth Protection: Assets in Trust B can grow outside the surviving spouse’s estate.
- ✅ State Estate Tax Shielding: Some states have lower estate tax exemptions than the federal level.
- ✅ Planning for Future Law Changes: Federal exemptions may sunset in 2026, reducing thresholds.
Drawbacks and Challenges
- ❌ Complexity and Cost: More expensive to draft, administer, and maintain.
- ❌ No Step-Up in Basis for Trust B Assets: May result in higher capital gains taxes for heirs.
- ❌ Irrevocability of Trust B: Survivor has limited control over these assets.
Example: John and Maria
John and Maria have a $20 million estate. If John dies and leaves everything to Maria without a trust, she may later face estate taxes. With an A-B Trust:
- $13.61 million is sheltered in Trust B.
- Remaining assets go to Trust A.
- When Maria dies, only Trust A assets may be taxed.
This potentially saves their heirs millions in estate taxes.
Who Should Still Use an A-B Trust in the U.S.?
- Couples with estates over $10 million, especially if they anticipate changes in estate tax laws.
- Families with children from previous marriages.
- Individuals living in states like Massachusetts, Oregon, or New York, which impose state-level estate taxes.
- Those needing creditor or remarriage protection.
Alternatives to A-B Trusts
- Portability-Based Planning: Simpler and relies on IRS portability election.
- Disclaimer Trust: Allows survivor to disclaim assets into a trust if beneficial.
- Revocable Living Trust Only: Avoids probate but offers limited tax benefits.
Frequently Asked Questions (FAQs)
Do A-B Trusts avoid probate?
Yes. Assets in the trust generally avoid probate in the U.S., saving time and legal costs.
Can the surviving spouse access assets in Trust B?
They may access income and, in some cases, principal under strict guidelines like HEMS (Health, Education, Maintenance, Support).
Can A-B Trusts be changed after one spouse dies?
Trust B becomes irrevocable after the first death, so it generally cannot be changed.
What happens if estate tax laws change in 2026?
The current exemption may drop to around $6 million per person. A-B Trusts provide a valuable hedge against that change.
Do A-B Trusts work with retirement accounts like IRAs or 401(k)s?
No, retirement accounts typically pass via beneficiary designations, not through a trust. However, trusts can be named as beneficiaries with careful planning.
Are A-B Trusts recognized in all U.S. states?
Yes, A-B Trusts are valid in all 50 states, but some state-specific laws—especially about estate tax or trust administration—may affect how they are set up or executed.
Conclusion: Is an A-B Trust Still Worth It in the U.S.?
While the landscape of estate planning has shifted with the advent of portability, the A-B Trust remains a relevant and powerful tool for many American families. It provides not only tax benefits but also legal protections, inheritance control, and asset growth advantages.
In uncertain times, especially with potential federal tax changes ahead, setting up an A-B Trust can be a wise move for high-net-worth individuals and families. It’s not just about saving taxes—it’s about securing your legacy.
