The A/B Trust in 2026: Why the Classic Estate Tax Machine Mostly Sits Idle Now

For most of the last century, the A/B trust was the standard move for any married couple with real wealth. It split the estate at the first death, captured both spouses’ federal estate tax exemptions, and could shelter millions from the 40% federal tax. Then three things changed: the exemption grew enormous, portability made the unused exemption transferable with a form, and the tax code handed a new advantage – the step-up in basis – to couples who plan simply. In 2026, with a $15 million exclusion per person, the A/B trust is idle machinery for most families. But “most” is not “all,” and for a specific set of situations the bypass trust remains the best tool available. This guide explains how the structure works, when it now does more harm than good, and the checklist for deciding whether yours belongs in a drawer or in play.

How an A/B Trust Actually Works

Nothing happens while both spouses live. The plan – usually inside a revocable living trust – springs into action at the first death, dividing the estate into two shares:

• Trust B – the bypass (credit shelter / exemption-equivalent) trust. Funded with assets up to the first spouse’s available exclusion. It is irrevocable, files its own tax returns, and sits outside the survivor’s taxable estate forever. Whatever it grows to passes to the first spouse’s chosen heirs at the second death, estate-tax-free.
• Trust A – the survivor’s trust. Holds the survivor’s own share plus the balance of the estate. Outright transfers or a marital (QTIP) trust qualify for the unlimited marital deduction, so nothing is taxed at the first death; the value is instead included in the survivor’s estate at the second death.

The survivor benefits from both trusts – income from B, full control of A – but cannot touch B’s principal beyond the health, education, maintenance, and support (HEMS) standard. That restriction is not a drafting flaw; it is what keeps B outside the survivor’s estate.

The 2026 Numbers That Changed Everything

For context: a couple with a $10 million estate – comfortable, wealthy, seven figures of genuine complexity – has zero federal estate tax exposure in 2026, even if they do nothing. Under the formulas that made A/B trusts universal, that same couple was once a prime candidate. The structure’s original problem has simply disappeared for roughly the top 0.2% of estates.

The Hidden Cost: The Lost Second Step-Up

Here is why planners now discourage bypass trusts for sub-exemption estates, and why old A/B plans actively cost money. Under IRC Section 1014, inherited property gets a new cost basis equal to fair market value at death. Assets in the survivor’s estate get that reset twice – once at each death. Assets in the bypass trust get it once, because they never enter the survivor’s estate.

Run the arithmetic on a couple holding $5 million of long-held California real estate with a $500,000 basis. A bypass trust freezes the basis at the first death; if the property appreciates to $5 million by the survivor’s death, heirs inherit a multi-million-dollar capital gains bill on the B-trust half. The same property passing outright, with portability preserving the exemption, gets a full step-up at the second death and could be sold with near-zero gain. Planners cite examples where this difference costs families seven figures – far more than any estate tax saved. This interplay with step-up in basis is the single biggest reason to re-examine pre-2018 documents.

When the A/B Trust Still Wins

Retire the “obsolete” verdict against these situations, where the bypass trust earns its keep:

1. State estate tax states. States such as New York ($7.35 million exclusion, no portability, and a cliff that taxes the whole estate above $7.7175 million) and others with low or absent portability create exactly the problem the A/B trust solves at the state level. Without a bypass share, a couple leaving everything to the survivor wastes the first spouse’s state exemption entirely.
2. Blended families. The B trust guarantees the first spouse’s children from a prior marriage ultimately inherit, no matter what the survivor later does with their own estate. Portability cannot replicate that control.
3. Creditor and remarriage protection. Bypass assets held under a HEMS standard are generally beyond the survivor’s creditors and beyond a subsequent spouse’s claims.
4. GST-exemption planning. The generation-skipping transfer exemption is not portable. Allocating it to a bypass trust at the first death – often structured as a dynasty trust – is the standard way to build a multi-generation, tax-protected pool; see our guide to dynasty trusts.
5. Growth expectation above the exemption. For genuinely taxable estates, growth inside the B trust escapes the 40% rate forever, and that compounding dominates the step-up math.

A/B Trust vs. Portability: The Decision Table

Living With a Bypass Trust: What the Survivor Should Know

If you are the surviving spouse of a funded bypass trust, three practical rules matter. First, take income and HEMS distributions as designed – pressing the trustee for unrestricted access risks re-including the assets in your estate. Second, remember the trust files its own income tax returns, and compressed trust brackets hit accumulated income fast; distributions to you shift that income to your (often lower) brackets, which is usually the better move. Third, the assets inside the trust carry their old basis: coordinate any large sales with the trustee and a tax advisor before, not after, the transaction. An attorney’s trust funding review at the first death – which assets go to B, which to A, using pecuniary or fractional formulas – drives all of this, and getting the formula wrong can trigger unintended gain at funding itself.

Old A/B Documents: The Fix-It Checklist

Couples whose revocable trusts were drafted between the 1990s and mid-2010s almost certainly contain mandatory bypass language sized for a much smaller exemption. Here is the remediation path:

• Read the funding formula. Is the bypass share mandatory, or at the survivor’s or trustee’s election? Disclaimer-style language is the golden ticket – the survivor can simply decline.
• Check for a trust protector or decanting power that can modify the bypass share without court.
• Amend while both spouses are living. A revocable trust is exactly that – revocable. Converting a mandatory bypass to an elective one is a routine amendment.
• If a spouse has already died, ask counsel about state-specific post-mortem options: some states allow QTIP elections, disclaimers, or formula reformulations within limited windows on the estate tax return.
• File (or verify) the Form 706 at each death, even for estates under the filing threshold, to lock in portability. Missing that form is the most expensive piece of paper never filed.

Structure questions like these sit at the intersection of tax and family law, which is why this belongs in a broader estate planning checklist review alongside will vs. trust decisions and beneficiary designations on every policy you own – including the life insurance that funds the plan. An estate that carries a well-sized survivor income stream needs less shelter, not more: a sensible living trust plus adequate life coverage solves what most couples actually fear.

Frequently Asked Questions

What is an A/B trust?

An A/B trust is a married couple’s plan that splits the estate into two trusts at the first spouse’s death. Trust B (the bypass or credit shelter trust) holds assets up to the first spouse’s estate tax exclusion and passes outside the survivor’s taxable estate. Trust A (the survivor’s or marital trust) holds the rest, qualifying for the unlimited marital deduction.

Do A/B trusts still make sense in 2026?

For federal purposes, usually not. The 2026 exclusion is $15 million per person and $30 million per couple, and portability lets a surviving spouse inherit the deceased spouse’s unused exclusion with a simple election on Form 706. A/B trusts remain valuable for state estate tax states with low exemptions, blended families, creditor protection, GST planning, and controlling the first spouse’s remainder beneficiaries.

What is the biggest downside of a bypass trust?

The lost second step-up in cost basis. Assets in the bypass trust do not receive a new basis at the surviving spouse’s death, so heirs inherit the first-death basis and owe capital gains on decades of appreciation. For estates below the taxable threshold, that capital gains cost can exceed the estate tax the trust was designed to save.

What is the difference between an A/B trust and portability?

Both preserve the first spouse’s estate tax exclusion. Portability transfers the unused exclusion (DSUE) to the survivor via Form 706 – simple, flexible, and the default recommendation for most couples. An A/B trust does the same but locks the assets in an irrevocable trust, adding control and protection at the cost of complexity, separate tax filings, and the lost second step-up.

How does a surviving spouse access money in the bypass trust?

Only within limits. Most bypass trusts allow distributions for the spouse’s health, education, maintenance, and support (the HEMS standard), plus all trust income. Unlimited access would make the assets part of the survivor’s estate under the general power of appointment rules and defeat the bypass purpose.

Can an old A/B trust be changed?

Often yes. Many pre-2013 A/B trusts include disclaimer provisions or give a trustee or trust protector flexibility to shrink or eliminate the bypass share. Couples with older documents should have an estate attorney review whether the bypass language can be neutralized – one of the highest-value reviews in estate planning today.

Related Resources

• IRS: What’s New – Estate and Gift Tax – the authoritative source for the $15 million 2026 exclusion
• 26 U.S.C. 2056 – Bequests to Surviving Spouse (Cornell LII) – statutory basis of the unlimited marital deduction

Estate plans age faster than the people who sign them. If your trust predates 2018, review the bypass language, verify your beneficiary designations, and make sure your family’s income is protected. Compare free life insurance quotes today – the right coverage is the simplest shelter most families will ever own.

Related: our guide to incentive trusts that tie distributions to behavior covers what comes next.

A trust split into separate shares creates separate accounting obligations for each share, which is why trust accounting requirements should be planned before the split. Read trust accounting requirements for the details.