I often meet with couples where one spouse turns to the other and says, “I want to provide for you, but I also need to make sure the children from my first marriage are taken care of.” This is a common, and very human, situation in blended families. The concern is straightforward: how do you ensure a surviving spouse is comfortable for life, while guaranteeing that your ultimate legacy passes to the beneficiaries you intended?
For decades, one of the primary legal structures we used to address this was the AB trust. While its original purpose was largely tax-driven, its modern relevance is rooted in something far more personal: control and stewardship.
The Original Purpose: Minimizing Estate Tax
To understand the AB trust, you have to look back to a time when federal estate tax exemptions were much lower. For many years, a married couple could inadvertently waste one of their exemptions. If the first spouse to die left everything directly to the survivor, those assets would merge. When the surviving spouse passed away, their now-larger estate would be taxed using only their single exemption, potentially exposing a significant portion to federal estate tax.
The AB trust was the prudent answer. It is a provision within a revocable living trust that, upon the death of the first spouse, divides the trust into two sub-trusts:
- Trust A (the “Marital Trust”): This trust holds the surviving spouse’s share of the assets. The survivor typically has full control over this trust.
- Trust B (the “Bypass” or “Credit Shelter” Trust): This trust is funded with assets from the deceased spouse’s estate, up to the value of the estate tax exemption at that time.
The key was that Trust B became irrevocable. The surviving spouse could receive income from it—and often principal for health, education, or support—but they could not change its ultimate beneficiaries. When the survivor passed away, the assets in Trust B would “bypass” their taxable estate and pass directly to the named heirs, free of additional estate tax. The couple effectively used both of their exemptions.
Is the AB Trust Still Relevant for Tax Planning?
The federal estate tax exemption is historically high—over $13 million per person. For the vast majority of families, the original tax-saving purpose of the AB trust is no longer a pressing concern. However, we practice in New York, and that changes the calculation.
New York has its own state estate tax, and its exemption is significantly lower. Under New York Tax Law § 952, the 2024 exemption is $6.94 million. This creates what we call the “fiscal cliff.” If your taxable estate is even 5% over this amount, the entire estate—not just the overage—is subject to the New York estate tax. For families with assets in this range, using a Bypass Trust can still be a valuable tool for minimizing state-level tax liability.
For most of my clients, however, the conversation about AB trusts is no longer primarily about taxes. It is about certainty.
The Modern Case for the AB Trust: Certainty and Control
Let’s return to the blended family I mentioned earlier. The husband has children from a previous marriage. His current wife has her own assets. They have a home in Manhattan and a shared investment portfolio. His primary goal is to ensure his wife can live in their home and draw from the investments for the rest of her life, but that upon her death, his share of the assets goes to his children—not to his wife’s new spouse or her own heirs.
This is where the AB trust structure shines. By placing his assets into what becomes the irrevocable “B” trust upon his death, he creates a clear and legally binding plan. His wife, as the trustee and beneficiary, has access to the funds as specified in the trust document. She has a fiduciary duty to manage the assets prudently. But she cannot rewrite the trust’s terms. She cannot change the final beneficiaries. The husband’s legacy for his children is preserved.
This isn’t just for blended families. I’ve worked with couples who worry about a surviving spouse’s financial judgment, vulnerability to outside influence, or a future remarriage that could divert generational assets. The AB trust provides a framework for lifelong support without relinquishing ultimate control over the disposition of one’s property. It is an act of intentional, deliberate stewardship.
Planning an estate is about more than numbers. It is about understanding a family’s dynamics and putting a structure in place that honors your intentions long after you are gone. The AB trust, born of tax code, remains a powerful instrument for protecting your legacy.
If you are considering how to protect beneficiaries or manage a blended family’s assets, the first step is practical. Create an inventory of your major assets and a simple diagram of your family tree. These documents are the foundation for a productive discussion about your legacy.
