what is an a b trust 
an a b trust is a joint trust created by a married couple for the purpose of minimizing estate taxes it is formed with each spouse placing assets in the trust and naming as the final beneficiary any suitable person 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 understanding an a b trustestate taxes can bite deeply into a deceased person s assets for example consider a married couple that 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 unlimited marital deduction for assets flowing from a deceased spouse to a surviving spouse but then the other spouse dies leaving the money to their children the taxable portion of the estate the amount that exceeds the 2023 exemption threshold of 12 92 million will be 7 08 million this means that 7 08 million will be taxed at 40 4 25 million leaving 17 17 million 12 92 million 4 25 million for the beneficiaries 1to circumvent an estate from being subject to such steep taxes many married couples set up a trust under their 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 will be transferred into an irrevocable trust called the bypass trust or b trust this trust is also known as the decedent s trust the remaining amount 7 08 million will be transferred to a survivor s trust or a trust which the surviving spouse will have complete control over the estate tax on 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 12 92 million which means that the entire 20 million would pass tax free to the beneficiaries as the combined exemption of both spouses would be 25 84 million this removes the need for an a b trust 21benefits of an a b trustthe 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 estate tax exemption for this spouse is also 12 92 million for 2023 and the value of assets in the survivor s trust is still valued at 7 08 million none of it will be subject to estate tax 1the 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 2this is because the b trust uses up the estate tax exemption of the spouse that died first hence any funds left in the decedent s trust will be passed tax free as the decedent s trust is not considered part of the surviving spouse s estate for purposes of the estate tax double taxation is avoided net worth and a b trustsif the deceased spouse s estate falls under the amount of their tax exemption then it may not be necessary to establish a survivor s trust the unused portion of the late spouse s federal tax exemption can be transferred to the surviving spouse s tax exemption by filling out irs form 706 3while a b trusts are a great way to minimize estate taxes they are not used much today they were popular in the decades around the turn of the 21st century 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 12 92 million 25 84 million for married couples in 2023 1so only people with estates valued over 12 92 million 25 84 million for married couples will opt for an a b trust in 2023 with the portability provision a surviving spouse can include the tax exemption of their late spouse 25 84 million in 2023 which can be transferred tax free to beneficiaries if filed within the 9 month period 21