What Is an A-B Trust?

An A-B trust is a joint trust created by a married couple in order to minimize estate taxes. It is formed with each spouse placing assets in the trust and naming the final 澳洲幸运5官方开奖结果体彩网:beneficiary—that is, anyone except the other spouse. The trust gets its name from the fact that it splits into two separate entities when one spouse dies. Trust A is the survivor's trust and trust B is the decedent's trust. A-B trusts have become less popular because the estate tax exemption covers most estates.

Understanding an A-B Trust

澳洲幸运5官方开奖结果体彩网:Estate taxes can take a sizable portion of a deceased person's assets. For example, consider a married couple who has an estate worth $20 million by the time one of the spouses dies. The surviving spouse is left with the whole $20 million, which is not taxed due to the 澳洲幸运5官方开奖结果体彩网:unlimited marital deduction for assets flowing from a deceased spouse to a su♕rviving spouse.

But then, the other spouse dies, leaving the money to their children. The taxable portion of the estate (the amount that exceeds the 2025 exemption threshold of $13.99 million will be $6.01 million). This means that $6.01 million will be taxed at 40% ($3.61 million), leaving $17.6 million ($13.99 million + $3.61 million) for the beneficiaries.

To circumvent an estate from being subject to such steep taxes, many married couples set up a trust under their 澳洲幸运5官方开奖结果体彩网:last will and testaments called an A-B trust. In the example above, if the couple instead had an A-B trust, the death of the first spouse would not trigger any estate taxes as a result of the lifetime exclusion; however, a sum of money equal to the current exemption amount ($13.99 million) will be transferred into an 澳洲幸运5官方开奖结果体彩网:irrevocable trust called the bypass trust or B trust. This trust is also known as the decedent’s trust. The remaining amount, $6.01 million, will be transferred to a survivor’s trust, or A trust, which the 澳洲幸运5官方开奖结果体彩网:surviving spouse will have complete ꦫcontrol over. The estate tax o🍨n the A trust is deferred until after the death of the surviving spouse.

It's important to note that if the surviving spouse elected portability when the first spouse died, the portion of the first spouse's exemption would pass to the surviving spouse, in this case, $13.99 million, which means that the entire $20 million would pass tax-free to the beneficiaries, as the combined exemption of both spouses would be $27.98 million. This removes the need for an A-B trust.

Benefits of an A-B Trust

The A trust contains the surviving spouse’s property interests, but they have limited control over the assets in the deceased spouse's trust. However, this limited control over the B trust will still enable the surviving spouse to live in the couple's house and draw income from the trust, provided these terms are stipulated in the trust.

While the surviving spouse can access the bypass trust, if necessary, the assets in this trust will bypass their taxable estate after they die. After the surviving spouse dies, only the assets in the A trust are subject to estate taxes. If the 澳洲幸运5官方开奖结果体彩网:estate tax exemption for this spouse is also $13.99 million for 2025 and the value of assets in the survivor’s trust is still valued at $6.01 million, none of it will be subject to estate tax.

The federal tax exemption is transferable between married couples through a designation referred to as the portability of the estate tax exemption. If one spouse dies, the unused portion of their estate tax exemption can be transferred and added to the estate tax exemption of the surviving spouse. Upon the death of the surviving spouse, the property in the decedent's trust passes tax-free to the beneficiaries named in this trust.

ꦍThis is because the B trust uses up the estate tax exemption oꦕf the spouse who died first, so any funds left in the decedent’s trust will be passed tax-free.

Who Uses an A-B Trust?

While A-B trusts are a great way to minimize estate taxes, they are not used much today. They were popular when the estate tax—which hadn't been adjusted for years—could be triggered on estates as small as $1 million or $2 million. Nowadays, each individual has a combined lifetime federal gift tax and estate tax exemption of $13.99 million ($27.98 million for married couples) in 2025.

So only people with estates valued over $13.99 million ($27.98 million for married couples) will opt for an A-B trust in 2025. With the portability provision, a surviving spouse can include the tax exemption of their late spouse, which can be transferred tax-free to beneficiaries if filed within the 9-month period.

The Bottom Line

A-B trusts are beneficial in 澳洲幸运5官方开奖结果体彩网:estate planning to reduce taxes. However, they are less popular now that there are higher estate tax exemptions. (In 2025, it's $13.99 million for an individual, and $27.98 million for a married couple who uses portability of exemption.) For those with estates that exceed these limits, though, it's likely worth it to work with an advisor who can help you find ways to minimize taxes when passing on your assets to your heirs.