Many married couples created living trusts years ago using the “AB trust” or “A/B split” structure. At the time, this setup helped maximize estate tax exemptions when federal limits were much lower.
Today, the AB split can create unnecessary complications, especially in California, where home values are high. Real estate may be split so that 50% goes into the survivor’s trust and 50% into the bypass trust, locking up equity the surviving spouse might need. It can also prevent a full step-up in basis, leading to higher income taxes when property is eventually sold.
How the AB Split Works
- Survivor’s Trust (A Trust): Holds the surviving spouse’s assets, fully flexible and amendable.
- Bypass Trust (B Trust): Holds the deceased spouse’s assets, irrevocable, with limited access to principal and usually only income for the surviving spouse.
While bypass trusts are still useful in some cases—such as blended families or creditor protection—many couples now find them unnecessarily restrictive.
Solutions to Modernize Your Trust
1. Trust Restatement
You can restate your existing trust to remove the mandatory AB split. Modern restatements often allow the surviving spouse to choose whether to split the trust, providing flexibility based on current needs.
2. Court Order After Death of First Spouse
If the first spouse has already passed, California law allows the surviving spouse to petition the court to modify the trust to forgo the AB split. This legal process can convert the trust into a single, flexible trust, giving the surviving spouse access to both income and principal and preserving tax advantages such as a full step-up in basis for property.
3. Optional AB Election
Some trusts include an optional AB provision, letting the surviving spouse decide whether to merge or split the trust depending on tax planning or financial needs. This keeps creditor protections intact while increasing flexibility.
4. Living Trust Conversion
In some situations, converting to a single modern trust is the most efficient option. This simplifies administration, avoids duplicate accounting, and ensures full use of the estate tax exemption while maintaining asset protection.
Why Updating Matters
With high California property values and changing federal estate tax exemptions, an outdated AB split trust can lock up assets and create unnecessary tax consequences. Updating your trust ensures your family has flexibility, control, and peace of mind.
Bryant Estate Planning & Elder Law offers a no-cost consultation to review your living trust and discuss options to modernize or eliminate the AB split. Call (408) 286-2122 or visit BryantElderLaw.com to schedule your consultation.
This article is for general informational purposes only and is not legal advice. Trust and tax laws change, and individual circumstances vary. Please consult a qualified attorney for guidance specific to your situation.
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