What Is an A/B Trust—and Why Is It Important?
You want your spouse to be financially secure—and you want the legacy you built together to reach the people you choose. An A/B trust can help accomplish both goals. For some married couples, it can also be an important estate-tax planning tool.
But an A/B trust is not the right fit for every family. Understanding how it works—and the tradeoffs—is the first step.
What Is an A/B Trust?
An A/B trust is an estate-planning arrangement for married couples that divides trust assets into two separate trusts when the first spouse dies. The division follows the trust’s instructions; it is not necessarily an equal split.
Although terminology varies, the two trusts commonly work like this:
Trust A—the survivor’s trust: Generally holds the surviving spouse’s share of the assets. The surviving spouse typically retains the ability to change or revoke this trust.
Trust B—the bypass or credit shelter trust: Generally receives assets allocated from the deceased spouse’s share. It usually becomes irrevocable at the first spouse’s death, meaning the surviving spouse generally cannot freely rewrite its terms.
The surviving spouse may still receive income or principal from Trust B under the trust’s distribution rules. “Irrevocable” does not necessarily mean the assets are unavailable to support the survivor. A properly structured bypass trust generally keeps its assets outside the surviving spouse’s taxable estate. Source: Estate-planning commentary on bypass trusts.
Why Can an A/B Trust Be Important?
1. It Can Help Preserve Estate-Tax Benefits
Leaving everything outright to a surviving spouse can be simple, but it may miss opportunities to use the first spouse’s estate-tax exclusion.
This is particularly important in Washington, which has its own estate tax and does not allow portability of a deceased spouse’s unused Washington estate-tax exclusion. In other words, the survivor cannot simply add the first spouse’s unused state exclusion to their own. A properly designed and funded bypass trust can help address that issue. Washington Department of Revenue, Estate Tax FAQ.
Federal rules are different: qualifying estates can elect to transfer a deceased spouse’s unused federal exclusion to the surviving spouse. That election generally requires filing a federal estate-tax return. Federal portability does not replace Washington-specific planning. IRS, Instructions for Form 706.
2. It Can Support a Spouse While Preserving an Inheritance
An A/B trust can provide support for the surviving spouse while directing that the remaining bypass-trust assets eventually pass to designated beneficiaries.
For blended families, that can be especially valuable. A spouse may want to provide for their husband or wife while also preserving an inheritance for children from an earlier relationship.
The protection depends on the document’s actual terms—including distribution standards and any authority to change the ultimate beneficiaries.
3. It Can Keep Future Growth Outside the Survivor’s Taxable Estate
When properly structured, assets held in the bypass trust—and their subsequent appreciation—generally remain outside the surviving spouse’s taxable estate. That can matter when investments, real estate, or business interests increase substantially in value. Source: Estate-planning commentary on bypass trusts.
What Are the Tradeoffs?
An A/B trust is not automatically a tax-saving solution for every couple.
Potential disadvantages include:
Less flexibility: The surviving spouse generally cannot freely change the bypass trust.
Additional administration: Separate accounting, tax filings, and professional assistance may be necessary.
Income-tax consequences: Bypass-trust assets generally do not receive another basis adjustment merely because the surviving spouse dies. That can affect capital-gains taxes when beneficiaries later sell appreciated assets. Source: Estate-planning commentary on bypass trusts.
Is an A/B Trust Right for Your Family?
The answer depends on your assets, family relationships, tax exposure, and how much flexibility you want the surviving spouse to retain.
The goal is not simply to create two trusts. It is to create a plan that supports your spouse, protects your intended beneficiaries, and accounts for both estate taxes and income taxes.
If you already have an A/B trust, have it reviewed periodically. A plan that made sense when you signed it may need updating as your family, assets, and tax laws change.
Ready to understand your options? Schedule an estate-planning consultation to discuss whether an A/B trust fits your family’s goals.
This article provides general information about Washington estate planning and is not individualized legal or tax advice.