Is it really necessary to restate your A/B Trust

Dear Len & Rosie,

We have a living trust that we created ten years ago. I believe the trust is called an “A/B Living Trust.” Over the last ten years we have kept all assets in the trust.  The company that created the trust has called and said that it is a good idea to restate the trust especially because it is an A/B trust. Of course they want us to pay for it. Is it really necessary to restate the trust given that we haven’t changed our beneficiaries, or our assets?


Dear Christine,

The way your A/B trust works is that upon the death of the first of you to die, the trust is divided into two or sometimes three subtrusts. The A trust (for the above-ground spouse) holds the surviving spouse’s assets.  The B trust (for the below ground spouse) holds the dead spouse’s assets.

The B trust, frequently called the “Bypass” or “Exemption” or “Decedent’s” trustis an irrevocable trust funded with the portion of the deceased spouse’s assets that pass free of Federal Estate Tax. The surviving spouse usually gets all of the income of the B trust, and may dip into the principal of the B trust if the A trust assets and assets outside the trust are insufficient to pay for the surviving spouse’s needs.

When you created your trust, there was a lot of uncertainty as to the future of the Federal Estate Tax. Under the 2001 tax law, the Federal Estate Tax exemption was supposed to drop to only $1,000,000, in 2011. So if you and your spouse had more than that ten years ago, then an A/B trust was right for you, at that time.

Times are different now. The estate tax exemption today is $5,430,000, and will increase annually with inflation. The surviving spouse can also take the dead spouse’s exemption for himself or herself, allowing a married couple to pass in excess of $10,000,000 without paying any estate tax.

You may want to keep the A/B trust the way it is if you and your husband want to restrict the ability of the surviving spouse to change things. This can be very important in blended families with children from prior marriages, because while most spouses want to leave everything to one another, they still want their children to inherit it all in the end.

Having said that, what you should do is to amend your existing trust by replacing the entire document with a restated trust. This is better than making an entirely new trust, because you won’t have to remove your assets from your old trust and put them into a new trust. Most well-drafted ordinary trusts for married couples include an optional disclaimer trust, so that if it turns out that you are too wealthy for estate tax purposes, the surviving spouse may disclaim assets passing from the deceased spouse in order to avoid the estate tax on the second death. Disclaimed trust assets would then be held in the disclaimer trust, which still provides income to the surviving spouse and the ability to dip into the trust principal if needed.

Len & Rosie