What is an A-B Trust (aka “Bypass Trust”)?

An A-B Trust (aka “Bypass Trust”) is a trust established by a married couple which must divide into two trusts when the first spouse dies. This type of trust is intended to:

• Avoid probate for both spouses’ estates
• Position the deceased spouse’s share of trust assets so that they ultimately pass to the deceased spouse’s beneficiaries while providing the surviving spouse access to those assets during the surviving spouse’s lifetime
• Utilize the federal exemption amounts available to both spouses

When the first spouse dies, the original trust will be divided into two trusts. The surviving spouse’s trust assets will remain in the original trust which is often called the “A Trust” or “Survivor’s Trust”. All of the income and principal in the A Trust are paid to and available to the surviving spouse. This trust remains amendable and revocable by the surviving spouse.

The deceased spouse’s trust property goes into the new trust called the “B Trust” or “Bypass Trust” (up to the maximum amount that passes free from federal estate tax). Income in this trust is paid to the surviving spouse who usually may also access trust principal if the principal is used for the survivor’s health, education, maintenance or support. Any principal remaining in the B Trust at the death of the surviving spouse then passes to the beneficiaries identified by the deceased spouse (i.e., the first spouse to die).

The B Trust is not generally amendable or revocable once the first spouse has died. This means the surviving spouse cannot change the beneficiary designation of the B Trust to transfer the deceased spouse’s assets to his or her own beneficiaries. For this reason, this type of trust is often used in blended families so that the children of the deceased spouse remain the beneficiaries of the deceased spouse’s trust assets.