When it comes to estate planning, not all trusts are created equal—especially for married couples. The structure of your trust can have a profound impact on taxes, control, and asset protection. In California, many couples hear terms like “A” Trust, “AB” Trust, and “ABC” Trust without a clear understanding of what these mean or how they affect their estate.
This article breaks down these trust types and explains how to choose the right fit for your family and financial goals.
What Is an “A” Trust?
The “A” Trust—sometimes referred to as a survivor’s trust or simple revocable trust—is the most straightforward type of trust used by couples.
Key Features:
- When one spouse dies, all trust assets typically remain with or become fully available to the surviving spouse.
- The trust remains revocable, meaning the surviving spouse can change beneficiaries, terms, and asset management.
- No estate tax planning is implemented at the first spouse’s death.
When to Use It:
This structure is often appropriate for modest estates that fall well below the federal estate tax exemption. It works best for couples who share the same beneficiaries and have simple planning goals.
Pros:
- Easy to administer.
- Complete flexibility for the surviving spouse.
Cons:
- No tax planning—may lead to higher estate taxes if the estate grows substantially before the second death.
- No protection for children’s inheritance in the event of remarriage.
What Is an “AB” Trust?
An “AB” Trust is a more advanced strategy designed for estate tax savings. When the first spouse dies, the trust is divided into:
- Trust A: The Survivor’s Trust, holding the surviving spouse’s share (still revocable).
- Trust B: The Bypass Trust or Credit Shelter Trust, funded with the deceased spouse’s assets up to the amount of the federal estate tax exemption.
Key Features:
- Trust B becomes irrevocable upon the first death.
- Trust B’s assets grow outside the surviving spouse’s taxable estate.
- Trust A remains revocable and fully under the surviving spouse’s control.
Pros:
- Preserves the estate tax exemption of the first spouse to die.
- May protect the assets in Trust B from creditors and remarriage risks.
- Ensures the first spouse’s beneficiaries ultimately receive their share.
Cons:
- More complex administration.
- Bypass trust assets are locked in and not fully available to the survivor for unrestricted use.
What Is an “ABC” Trust?
An “ABC” Trust takes estate planning one step further. This structure is particularly useful for larger estates or blended families.
Upon the first spouse’s death, the trust splits into:
- Trust A (Survivor’s Trust) – revocable, holds survivor’s share.
- Trust B (Bypass Trust) – irrevocable, uses deceased spouse’s exemption.
- Trust C (QTIP Trust) – irrevocable, qualifies for the marital deduction, providing income to the surviving spouse during life, but ultimately passes to the first spouse’s chosen beneficiaries.
Why Add a Trust C?
Trust C qualifies for the unlimited marital deduction and allows the estate to defer taxes while ensuring the first spouse controls where those assets go after the surviving spouse’s death.
Pros:
- Maximum tax efficiency using both spouses’ exemptions and the marital deduction.
- Ideal for blended families—lets one spouse provide for the other while locking in inheritance for their own children.
- Can protect Trust C assets from creditors or later remarriage.
Cons:
- Most complex to draft and administer.
- More costly to maintain and manage over time.
Understanding the Marital Deduction and Estate Tax Exemptions
To appreciate the differences between these trust types, it helps to understand the estate tax system.
Federal Estate Tax Exemption
Each U.S. citizen can leave a certain amount free of estate tax—$13.61 million in 2024. This is known as the applicable exclusion amount.
If a couple does no planning and leaves everything to the survivor outright, the first spouse’s exemption can be wasted unless portability is elected.
Unlimited Marital Deduction
The IRS allows spouses to transfer unlimited assets to one another at death free of estate tax—but only if the surviving spouse is a U.S. citizen. However, this deduction only defers tax until the second death.
Portability
A surviving spouse can “inherit” the unused exemption of their deceased spouse, but only if a federal estate tax return is filed at the first death. Even then, portability doesn’t offer creditor protection, nor does it remove appreciation on those assets from the survivor’s taxable estate.
Why It Matters in California
Although California doesn’t impose a state estate tax, California residents are subject to federal estate tax, and their estates may appreciate rapidly due to high property values. A trust structure that takes advantage of both the marital deduction and the estate tax exemption can lead to significant tax savings.
Choosing the Right Structure for Your Estate Plan
When deciding between an “A” Trust, “AB” Trust, and “ABC” Trust, consider:
- Estate Size: If you’re approaching or exceeding the federal exemption, “AB” or “ABC” trusts offer significant tax savings.
- Blended Families: “ABC” trusts can help ensure your children inherit, even if your spouse remarries.
- Administrative Simplicity: “A” trusts are easier to manage but may miss out on key benefits.
- Creditor Protection & Control: “AB” and “ABC” trusts can shield assets and preserve control after death.
Final Thoughts
An “A” Trust may be all that’s needed for some families—but for those with larger estates, remarriage concerns, or a desire to maximize tax savings, “AB” and “ABC” trusts offer powerful tools.
Estate planning is not one-size-fits-all. The best plan is the one tailored to your needs.
Work With a Trusted Estate Planning Attorney
Because trust structures impact taxes, beneficiaries, and family dynamics for decades, we strongly recommend working with a knowledgeable estate planning attorney to ensure your plan is effective and current.
For those in Kern County, California, we recommend consulting with:
Jared R. Clemence, Attorney at Law