What is an A-B trust?


What is an AB trust? Well, an AB trust is vernacular that many people use to describe a trust design that takes the assets when one spouse dies and divides them between the survivor’s portion of the assets and the assets that belonged to the decedent. Some people say A for above ground, B for below ground. In fact, it’s engaging in minimum estate tax and marital deduction tax planning by separating the survivor’s assets from the assets of the decedent up to the $5.49 million exemption that each person has when they pass away.

So an AB trust is a trust that divides or splits at the death of the first spouse and separates the survivor’s from the decedent’s portion of the assets.

Note: The Tax Cut and Jobs Act of 2017 signed into law in December 2017 increased the exemption amounts mentioned in these videos. The personal estate, gift, and generation-skipping tax lifetime exemption was increased to $11.18 million per person. The annual gift tax exclusion was increased to $15,000 per donee per year.

Both amounts are indexed for inflation and may increase year over year until December 31, 2025, when the law sunsets and reverts to 2017 values.