As of January 1, 2013, the federal estate tax exemption is now $5,250,000 per person. This means that each person can pass during his or her life time (or at death) up to this amount without imposition of federal estate or gift tax. However, back in the 1990s, the federal exemption was only $600,000. Therefore, it was very common to see A/B trust provisions in revocable trusts for married couples to take advantage of both spouses’ estate tax exemption.

The reason for doing this type of planning was so that at the death of the first spouse, the trust would split into an “A” Survivor’s Trust and “B” Bypass Trust. This way the couple could take advantage of both spouses federal applicable exemption amount and the entire estate would not be credited to the survivor’s estate at the death of the surviving spouse. Back in the 1990s, this planning would ensure taking advantage of two times the $600,000 federal exemption amount at the death of the surviving spouse. However, in today’s new legislative environment, there is really no need to have A/B provisions in most married couple revocable trusts, at least not for federal estate tax purposes if the couple has a net worth less than $5,250,000.

But there is another reason for having A/B provisions or to have A/B disclaimer provisions in your revocable trust. You can get some excellent asset protection for the surviving spouse by creating an A/B structure in your living trust or by having an optional disclaimer to create the bypass trust at the death if the first spouse within 9 months of the date of death of the first spouse.

How this works is that at the death of the first spouse, the trust splits 50% into a Survivor’s Trust and 50% into a Bypass Trust (assuming that all the assets in the trust are community property). The surviving spouse can be the trustee of the Survivor’s Trust and of the Bypass Trust. However, if the surviving spouse were to ever go through a bankruptcy, a subsequent divorce, get sued, or have some other creditor problem, the surviving spouse can resign as trustee over the Bypass Trust and appoint an independent third-party trustee to protect the assets in the Bypass Trust from the creditor. Then, that independent third-party trustee can turn off distributions from that trust so that a creditor cannot crack it.

If you like to learn more about A/B trust planning and having a Bypass Trust in your Revocable Trust, please contact me at [email protected] or call my office 760-448-2220. Or visit us on the web at

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