Trust Structure
In our discussion, I described and explained two (2) alternative trust structures, one called a "Mandatory Split Trust" or an "A-B Trust" and the other one called a "Survivor's Trust" or "Disclaimer Trust."
I explained that your Trust could include a mandatory division of your assets, into two separate trusts, following the death of the first of you. This mandatory division of Trust assets, often called a "Mandatory Split Trust or an "A-B Trust allows a surviving spouse to have unlimited access to approximately one-half (1/2) of the Trust estate (the "Survivor's Trust or "A Trust" ), but a more limited use and benefit from the remaining half (1/2) (the "Exemption Trust " or "B Trust" ). The downside of the A-B Trust is that the B Trust is treated like a separate legal entity that the surviving spouse must appropriately manage during his or her lifetime - (like having a small company), with legal obligations for tax returns, accountings, and accountability to the remainder beneficiaries.
The benefit of the A-B Trust is that while the surviving spouse has use and benefit from the B Trust, the surviving spouse has no authority to change the final distribution of the B Trust assets, making it very likely that those assets actually will be distributed to your agreed remainder beneficiaries, and not to anyone else (the surviving spouse's new "friends"). These protective concerns are legitimate (for some clients more than others) and the B Trust remains an effective manner in which to address them.
Another traditional benefit of a B Trust is that the assets in the B Trust are not included in the surviving spouse's estate for estate tax purposes. The A-B Trust can still be used to accomplish these estate tax benefits; however, the passage of the American Taxpayer Relief Act of 2012 ("ATRA"), signed on January 2, 2013, together with the passage of the Tax Cuts and Jobs Act ("TCJA"), signed on December 22, 2017, and the One Big Beautiful Bill Act ("OBBBA"), signed on July 4, 2025, now suggest that estate tax protections are no longer reason alone to have an A-B Trust. Instead, ATRA, TCJA, and OBBBA, make available the "portability" of a deceased spouse's unused exclusion amount ("DSUEA"). As a reminder, an individual's "exclusion amount" is the amount an individual may give away, during life or death, without any requirement to pay the federal gift/estate tax. Under ATRA, the exclusion amount for 2018 was set at $5.6 million; however, TCJA increased the exclusion amount significantly, setting the 2018 exclusion amount at $11.18 million, and OBBBA reset it at $15 million. Like ATRA and TCJA, OBBBA provided that the exclusion amount will index for inflation on an annual basis, meaning that the exclusion amount will increase at the beginning of each calendar year. As a result, that amount is $15 million per person for deaths occurring in 2026.
As noted above, portability is a viable tool for addressing estate tax planning issues (not GST exemption), whether ATRA, TCJA, or OBBBA provisions are effective. “Portability” provides the option (but not requirement) for the survivor of you to preserve the DSUEA by timely filing a Form 706 (estate tax return) and checking a box to preserve the DSUEA. The filing of Form 706 is not an uncomplicated endeavor; however, this option is an effective manner in which a survivor may ensure his or her ability to use both of your estate tax exclusions to reduce and possibly eliminate any estate taxes. To ensure that the survivor of you timely takes advantage of “portability” as a potential tax-planning tool, it will be important for the survivor of you to consult with an attorney, CPA, and/or other tax advisor, following the death of the first of you.
As noted above, depending on your primary goal, your concerns, and ultimate feeling about what should happen upon your death, you two might decide that it is appropriate for you NOT to have an A-B Trust.
Although OBBBA appears to be “permanent,” I believe it is good, prudent practice to retain some flexibility in your Trust, and as a result, even if you choose to have a "Survivor's Trust" we want to make sure that in the unlikely case that the law changes the Trust still allows the survivor of you to make a “qualified” disclaimer of part or all of the deceased spouse’s share of the Trust estate. If the survivor of you timely makes the appropriate qualified disclaimer, then the amount disclaimed will be held, by the survivor of you, as Trustee, in a separate trust to be called the “Disclaimer Trust.” The Disclaimer Trust basically is an option for the survivor of you to establish and fund a B Trust, should there be a significant reason to do so. During his or her lifetime, the survivor of you will have access to the assets in the Disclaimer Trust, though in a more limited manner than his or her access to the Survivor’s Trust. Specifically, the survivor will be entitled to all of the net income from the Disclaimer Trust, as well as to portions of the principal for the survivor’s health, education, support and maintenance, in a manner consistent with the survivor’s accustomed standard of living. In addition, the survivor will have the right to receive, on an annual basis, the greater of five thousand dollars ($5,000.00) or five percent (5%) of the Trust estate of the Disclaimer Trust, regardless of his or her other resources and standard of living. This is pursuant to federal tax rules.
Trustee Selection
In addition to the above decision and selection, you will also decide who should be the successor trustee or co-trustees following both of you. You do not need to indicate yourselves, as you two will be the initial Co-Trustees, and following the inability of one of you to act, the other will continue as sole Trustee. However, the decision you make will govern the succession of the trusteeship.
Other Documents
As we discussed, the other information is for the additional documents which include Last Wills and Testaments (for disposition of tangible personal property items), Durable Powers of Attorney (for financial powers while incapacitated), and Advance Health Care Directives (for medical decision making).