A Is Above Ground, B Is Below Ground: What a Bypass Trust Still Does

Why the old question changed

For 2026, the federal basic estate-tax exclusion is $15 million per individual. Portability can also allow a surviving spouse to use a deceased spouse's unused exclusion when a timely, complete Form 706 election is made. Those rules can reduce the need for an A/B structure whose only job was federal estate-tax sheltering.

That does not make every bypass trust obsolete. It changes the review question.

The useful question is whether the B share still performs a family-protection, control, liquidity, or beneficiary job that the surviving spouse's revocable share cannot perform alone.

The simplest way to see the structure

At the first death, an A/B plan generally separates the survivor's share from a bypass, credit-shelter, or family share created under the deceased spouse's plan. The surviving spouse may retain defined access under the document, while the protected share can preserve the deceased spouse's beneficiary direction.

The exact result depends on the trust language, governing state law, title, funding, trustee powers, distribution standard, and administration. It is not created by the A/B label alone.

What the family lock may still buy

A properly designed and administered bypass share may help keep the deceased spouse's property directed toward the intended beneficiaries through the survivor's remaining lifetime. That can matter when the family is concerned about:

• A later marriage or changed beneficiary direction
• Business, professional, or other future liabilities
• Trustee discipline and documented distribution standards
• Children from a prior relationship
• Preserving a separate pool for long-range family goals

Those are attorney-led protection and control questions. JPOPE's role is to connect them to the property economics instead of letting the document review happen in isolation.

The honest basis trade

Inherited-property basis is governed by Internal Revenue Code Section 1014 and the facts of estate inclusion and ownership. Appreciated property included in the first spouse's estate may receive a basis adjustment at that death. Property held in a bypass trust that is not included in the survivor's later estate may not receive another adjustment at the survivor's death.

Order and timing also matter. Section 1014(e) can deny a basis increase when appreciated property was transferred to a decedent within one year of death and returns to the original donor or the donor's spouse.

That is why modern planning rarely asks only, "A/B or not?" It asks which assets need the family lock, which need basis flexibility, and what happens if either spouse dies first.

What JPOPE reviews

• The current trust, ownership chart, and what becomes irrevocable at the first death
• Basis, depreciation history, fair market value, debt, and embedded gain by asset
• Family-protection, beneficiary, control, remarriage, and liquidity goals
• Estate-inclusion facts and the potential first- and second-death basis consequences
• Order-of-death assumptions and the Section 1014(e) one-year limitation
• Questions and implementation owners for estate counsel and the CPA

JPOPE planning lens

An A/B trust can hold two promises in tension: protect the family plan and preserve tax flexibility. The answer is rarely one structure for every asset.

JPOPE builds the asset-by-asset map so the estate attorney and CPA can compare protection, control, basis, timing, and implementation using the same facts. JPOPE does not draft or amend the trust, provide Medicaid spend-down planning, or replace legal and tax advice.

Primary sources reviewed

• IRS estate-tax overview and 2026 exclusion amount
• IRS Instructions for Form 706, including portability
• Internal Revenue Code Section 1014
• IRS Publication 551: Basis of Assets

Sources were reviewed July 17, 2026. This briefing is educational and does not replace trust-specific legal, tax, creditor, valuation, or estate-planning advice.