AB Trust

An AB Trust is an estate planning tool often used by married couples to minimize estate taxes. It’s referred to as an AB trust because it typically splits into two trusts upon the first spouse’s death: The “A Trust,” also known as a Survivor’s Trust, and the “B Trust,” also known as a Bypass Trust or Credit Shelter Trust. 

When the “B Trust” or Credit Shelter trust is funded, the amount transferred into the trust is covered by the first-to-die’s federal tax exemption. This means that, upon the second spouse’s death, any appreciation of the trust’s funds is sheltered from estate tax. 

The Marital Trust receives any assets that are in excess of the bypass trust’s funds, and these assets are covered by the unlimited marital deduction at first death. There is no estate tax at first death, but the assets in the marital trust and any appreciation are subject to estate tax upon the second spouse’s death.