If your living trust was drafted years ago, it may still split your assets into an “A” and a “B” share automatically. For many California couples, that structure no longer does what it was designed to do — and in some cases it can quietly create a tax problem for your heirs.
This article “Do You Have an Outdated A/B Trust?” is general information for Bay Area residents and is not legal, tax, financial, or medical advice. For guidance about your own situation, consult a licensed professional.
Why A/B Trusts Used to Matter
A/B trusts were designed when the federal estate tax exemption was much lower and could be used up by ordinary families with modest wealth. By dividing assets between the two spouses’ shares, the trust could shelter more property from estate tax at the death of the second spouse. That made sense when a couple could otherwise lose a large portion of the estate to taxes.
Why They Matter Less Now
Today, most married couples are below the federal exemption threshold, so there is often no estate tax to avoid in the first place. Current law also allows portability, which lets a surviving spouse use the deceased spouse’s unused exemption by filing the proper estate tax return. That means many couples can leave property outright to each other without losing the tax benefit that A/B trusts were designed to preserve.
The Tax Tradeoff Has Changed
In California, the bigger planning issue for many families is now capital gains tax, not federal estate tax. A/B trusts can prevent a full step-up in basis on the deceased spouse’s separate share, which may leave heirs with a larger capital gains tax bill later. So a structure that once saved estate tax can now create income tax problems for the next generation.
What This Means for California Families
For most Californians, A/B trusts are now less about tax savings and more about control, creditor protection, or second-marriage planning. They may still be useful for very high-net-worth families or special situations, but they are no longer the automatic default they once were. In many cases, a simpler trust plan is more flexible and can produce better overall tax results.
Frequently Asked Questions
What is an A/B trust?
It is a trust that splits a married couple’s assets into an “A” share and a “B” share. The original purpose was to preserve both spouses’ estate tax exemptions by sheltering more property from estate tax at the death of the second spouse.
Do most married couples still need an A/B trust?
For most couples, no. Today most married couples are below the federal exemption threshold, so there is often no estate tax to avoid in the first place, and portability lets a surviving spouse use the deceased spouse’s unused exemption.
What is portability?
Portability lets a surviving spouse use the deceased spouse’s unused estate tax exemption by filing the proper estate tax return. This means many couples can leave property outright to each other without losing the benefit an A/B trust was meant to preserve.
Can an old A/B trust actually raise my family’s taxes?
It can. An A/B trust can prevent a full step-up in basis on the deceased spouse’s separate share, which may leave heirs with a larger capital gains tax bill later. A structure that once saved estate tax can now create income tax problems for the next generation.
Are A/B trusts ever still worth keeping?
Yes. They may still be useful for very high-net-worth families or special situations, and for goals like control, creditor protection, or second-marriage planning. They simply are no longer the automatic default they once were.
SOURCES:
1. Federal estate & gift tax exemption is $15M per person in 2026; portability lets a surviving spouse use a deceased spouse’s unused exemption (DSUE) via a timely Form 706 — Fidelity, (Feb 3, 2026); IRS
2. Original draft cited consumer/legal explainers (Investopedia, Botti Law, Cunningham Legal, Clark & Allison, AffordableLivingTrusts). [VERIFY: exact source URLs/dates the author intended]
