Is Your AB Trust Obsolete?

What’s inside the guide

• Why couples were advised to split their trust into an A share and a B share decades ago, and what tax problem that split was built to solve
• How the federal estate tax exemption has moved since then, and why that shift changes whether the split still does anything for your family
• What “losing the basis step-up” actually means for the B trust’s assets, and how it can turn into a real capital gains bill down the road
• The ways a mandatory split can box in a surviving spouse who needs flexibility over how the money is managed or spent
• How to tell, from your own trust document, whether the AB structure has gone obsolete
• What to do next if your trust needs to change

What is an AB trust?

An AB trust is a married couple’s trust that splits into two trusts the moment the first spouse dies. The survivor’s share, often called the A trust, stays revocable and under the survivor’s control. The deceased spouse’s share, the B trust, becomes irrevocable and locked to the terms set when both spouses were alive. This was a standard structure for California couples for decades, particularly those who signed their trusts in the 1990s or 2000s.

Why don’t most couples need an AB trust anymore?

The mandatory split was built to shelter assets from federal estate tax back when the exemption was small enough that an ordinary couple could exceed it. Under current law, a married couple can pass $15,000,000 per person, or $30,000,000 combined, free of federal estate tax (IRC §2010(c); P.L. 119-21 §70106). Portability rules also let a surviving spouse carry over the deceased spouse’s unused exemption, as long as the first spouse’s executor files the election (IRC §2010(c)). For nearly all families, the specific tax problem the AB split was designed to prevent no longer exists.

Can an AB trust actually cost my family money today?

It can. Inherited property generally receives a step-up in basis to fair market value at death (IRC §1014), and for community property, both halves of an asset get that step-up when the first spouse dies, not just the deceased spouse’s half (IRC §1014(b)(6)). Once assets move into an irrevocable B trust, though, they typically sit outside the surviving spouse’s estate, so they miss the second step-up that assets in the survivor’s own revocable trust would get. That gap is where an outdated AB split can quietly generate a larger capital gains bill when the property is finally sold.

If you are not sure whether your own trust still needs its AB split, a trust health check is the fastest way to find out.