Reviewed on: September 16, 2026
> Attorney: James G. Burns, Esq., LL.M.
> Credentials: TEP (Trust and Estate Practitioner), Member of STEP; Selected to Super Lawyers 2022–2026; Top-Rated Lawyer (Avvo 2021); America's Most Honored Lawyers (2020)

The short answer

An older A/B bypass trust may still serve an important estate-tax or inheritance-protection purpose. But it may also prevent some assets from receiving a second basis adjustment when the surviving spouse dies. That matters when the family's assets are below the federal estate-tax threshold and have appreciated substantially.

For 2026, the federal basic exclusion amount is $15 million per person under current federal law, with inflation adjustments for later years under IRC § 2010(c)(3). That makes the old reason for using a B trust less compelling for some families, but not all. Portability, basis, estate inclusion, and inheritance protection are separate questions. Do not terminate, amend, decant, or distribute a bypass trust until counsel reviews the trust instrument, asset history, family circumstances, and projected estate-tax exposure.

Key Takeaways

• A B trust is generally designed to remain outside the surviving spouse's estate.
• Assets not included in the surviving spouse's gross estate generally will not receive a second basis adjustment at the survivor's death; whether § 1014 applies depends on the property, transfer, estate inclusion, and statutory exceptions.
• Portability under IRC §2010(c)(5)(A) transfers unused estate-tax exclusion only if a valid election is made on a properly filed Form 706, subject to applicable late-election relief, including Rev. Proc. 2022-32 where available.
• QTIP assets included under IRC §2044 may receive a basis adjustment at the surviving spouse's death.
• The right answer depends on the document, not the label “A/B trust.”

Review Alert: A/B Trusts Created Between 2011 and 2017

If your A/B or A/B/C trust was signed, amended, or funded between 2011 and 2017, it deserves a document-specific review. Portability concerns the law applicable to the decedent's death and the required Form 706 election—not simply the date the trust was created. Trusts created before 2011 may still involve portability if the first death occurred after portability became available and the statutory election requirements were satisfied. Deaths after 2010, including 2011–2012, may involve portability under temporary or transition-era legislation, subject to the applicable filing rules; portability was made permanent for later deaths beginning in 2013. That does not make every trust from this period defective. It does mean the family should ask whether the estate-tax shelter is still needed, whether the survivor is carrying unnecessary fiduciary and reporting burdens, and whether the structure may deny a second basis adjustment when the assets are not included in the surviving spouse's gross estate.

Who this applies to

This issue commonly affects California couples who:

• Signed an A/B or bypass-trust plan years ago.
• Funded a B trust after the first spouse's death.
• Own highly appreciated real estate, private-company interests, or securities.
• Have an estate that may be below the current federal estate-tax threshold.
• Are considering a trust amendment, decanting, disclaimer, or termination.
• Have never confirmed whether portability was elected on a timely Form 706.

California families should also examine whether assets are community property. IRC §1014(b)(6) may provide a basis adjustment for qualifying community property, subject to statutory requirements; the label “community property” alone does not guarantee a full adjustment for every asset. That analysis is separate from what happens to assets later held in an A or B trust.

Historical timeline

• Before 2011 deaths: portability generally was not available.
• Deaths after 2010, including 2011–2012: portability was available under temporary or transition-era legislation, subject to the applicable filing rules.
• 2013 onward: portability was made permanent.
• 2015–2017: documents from this period should not be assumed current merely because portability existed; review the actual trust formula, funding, asset values, and family objectives.

A trust, B trust, portability, and the second step-up

An A trust is usually the survivor's trust. It commonly remains revocable by the surviving spouse, and its assets are generally included in that spouse's gross estate at death.

A B trust, also called a bypass or credit-shelter trust, is generally funded at the first spouse's death. It is usually irrevocable and designed to use the first spouse's estate-tax exclusion while keeping the trust assets outside the surviving spouse's estate. The surviving spouse may still receive income and, depending on the document, principal.

That distinction creates the basis question.

IRC §1014 generally provides that the basis of property acquired from a decedent is adjusted to fair market value as of the applicable valuation date, subject to alternate-valuation rules and statutory exceptions, and the adjustment may increase or decrease basis depending on the facts. When property is included in the surviving spouse's gross estate, it may qualify for another basis adjustment at the survivor's death. Assets not included in the surviving spouse's gross estate generally will not receive a second basis adjustment at the survivor's death; whether § 1014 applies depends on the property, transfer, estate inclusion, and statutory exceptions.

Portability is different. Under IRC §2010(c)(5)(A), a surviving spouse may use a deceased spouse's unused exclusion amount, commonly called DSUE, if the deceased spouse's executor makes a valid portability election on a properly filed Form 706. Portability generally requires a properly filed Form 706, subject to applicable late-election relief, including Rev. Proc. 2022-32 where available. Portability affects estate-tax shelter. It does not itself create estate inclusion, transfer assets, or produce a basis adjustment.

QTIP planning is another distinct category. Property included in the surviving spouse's estate under IRC §2044 may qualify for a basis adjustment under IRC §1014, including the related rule in §1014(b)(10). A QTIP trust therefore should not be treated as interchangeable with a traditional B trust.

Older formula-driven plans may have been prepared without the benefit of today's basis-planning analysis and deserve review. That point is especially important for trusts signed, amended, or funded between 2011 and 2017.

For a broader explanation of California basis planning, see our article on step-up in basis in California and the firm's California estate-planning guide.

Comparison matrix

The Burden After the First Death

After the first spouse dies, the practical burden of an A/B or A/B/C structure often becomes the real issue.

B and C trusts generally become irrevocable after the first death, subject to the instrument and applicable law. That usually means the survivor cannot simply amend beneficiaries or rewrite the dispositive plan.

The survivor's access may also be limited by the trust's distribution standard. Many documents use an ascertainable standard such as health, education, maintenance, and support, but the exact instrument controls. Some documents are broader. Some are narrower. Read the actual language.

If the surviving spouse is also serving as trustee, fiduciary duties may apply to remainder beneficiaries. Depending on the instrument and the law, that can include proper administration, records, and accountings when required.

Funding and administration can also become a long tail of work. Asset allocation may need to be completed. Titles may need to be changed. A separate employer identification number (EIN) may be required when a trust becomes a separate taxpayer, while a revocable or grantor trust may follow different identification rules. A Form 1041 filing depends on the trust's tax classification, income, and other applicable requirements. A CPA should determine the EIN and filing obligations.

Tracking separate trust assets and transactions for the survivor's lifetime can create cost, compliance, and family-governance burdens, even when the original tax reason for the structure has faded.

Stale Funding Is Its Own Warning Sign

Where the trust instrument or implementation plan requires post-death allocation or retitling, unfinished funding is a warning sign. Some assets pass through beneficiary designations, operation of law, or other mechanisms, so the required steps must be determined asset by asset.

Retroactive corrections are fact-specific. They do not guarantee IRS acceptance merely because heirs reach a settlement or obtain a state-court order. Do not assume retroactive funding is routine or assured.

Hypothetical only: The appreciated investment account

A couple created an A/B plan when the federal exclusion was much lower. At the first spouse's death, $6 million of securities funded the B trust. The surviving spouse could receive income, but the trust remained outside the survivor's estate.

The securities later grew to $11 million. If the survivor dies while the assets remain outside the survivor's estate, the heirs may not receive a second basis adjustment for that post-first-death growth. That can create capital-gains exposure on a later sale.

The result could be different if the assets were held in the survivor's estate, or if a specific power caused estate inclusion. The trust language must be reviewed.

A residence held through a trust requires separate analysis under IRC § 121, including the taxpayer's ownership and principal-residence use requirements, applicable exceptions, and the trust's ownership and tax classification. A residence in a B or C trust does not automatically qualify or fail to qualify for the exclusion.

Hypothetical only: The estate-tax exposure remains real

A business-owning couple has a combined estate above approximately $30 million, before considering prior taxable gifts, deductions, valuation, portability, and other applicable facts. Their B trust holds substantial property and protects certain assets for descendants.

Even with a $15 million basic exclusion amount per person for 2026 under current federal law, future appreciation, valuation issues, prior gifts, life insurance, and changes in family wealth may create estate-tax exposure. The B trust may still serve a legitimate purpose.

The point is not that every bypass trust should be dismantled. The point is that basis planning cannot be analyzed without estate-tax planning.

When the Structure May Still Make Sense

An A/B or A/B/C structure may still be the right answer in the right family.

That can be true when the family has a substantial taxable estate, a blended family, children from a prior marriage, creditor concerns, remarriage concerns, control objectives, or other document-specific reasons for keeping part of the estate outside the survivor's direct control.

A disclaimer trust or another elective design may be worth considering in some families. It is not universally superior. The surviving spouse's choices, the document, timing, beneficiary rights, and tax consequences must be reviewed before implementation.

Hypothetical only: Disclaimer or trust modification

After the first spouse's death, the surviving spouse considers disclaiming an interest so assets pass into a more protective trust. A qualified disclaimer under IRC §2518 generally requires, among other conditions, a written refusal within the statutory period and no acceptance of the disclaimed property.

In a different family, a California trustee considers decanting an irrevocable trust under California Probate Code §§19501–19530, as applicable, including statutory notice, fiduciary-duty, beneficiary, and tax limitations. Another family considers modification under Probate Code §§15403–15404.

These tools are not interchangeable. They have timing, consent, notice, fiduciary, creditor, gift-tax, estate-tax, and basis consequences. A document-specific review is essential.

Common mistakes

• Assuming the $15 million exemption means every B trust is obsolete.
• Treating portability as a substitute for basis planning.
• Believing a surviving spouse can simply reclaim B trust assets.
• Ignoring community-property characterization.
• Failing to make a valid portability election on Form 706—or failing to preserve the applicable filing and DSUE records—can create serious problems.
• Amending an irrevocable trust without reviewing tax inclusion consequences.
• Looking only at the trust document while ignoring titles, account registrations, valuations, and beneficiary designations.

Six-part review checklist

1. Read the trust. Identify the A, B, QTIP, and survivor-trust provisions.
2. Map the assets. Confirm what funded each trust and how each asset is titled.
3. Trace basis. Document original basis, first-death value, current value, and expected sale timing.
4. Test estate inclusion. Review powers under §§2033, 2036, 2038, 2041, and 2044 where relevant.
5. Confirm portability. Determine whether a timely Form 706 was filed and whether DSUE was elected.
6. Model alternatives. Compare keeping, amending, decanting, disclaiming, or restructuring the trust before taking action.

A useful starting point is the firm's estate-planning service page. You can also compare the planning objectives discussed in Legacy Trust vs. Living Trust.

Founder Insight

A trust is not automatically good or bad because it is old, irrevocable, or called a bypass trust. The better question is whether the structure still matches the family's tax exposure, control needs, asset growth, and inheritance goals.

Documents are the nails. The plan is the architecture.

Tactical FAQ

Does every B trust prevent a second step-up?

No. A traditional B trust is generally designed to remain outside the surviving spouse's estate, but specific powers or provisions may produce estate inclusion. Assets not included in the surviving spouse's gross estate generally will not receive a second basis adjustment at the survivor's death, subject to the property, transfer, estate-inclusion, valuation-date, and statutory facts. Review the document.

Does portability create a second step-up?

No. Portability under IRC §2010 concerns estate-tax exclusion. Basis is a separate analysis under IRC §1014 and related provisions.

Is the $15 million exemption permanent?

For 2026, the federal basic exclusion amount is $15 million per person under current federal law, with inflation adjustments for later years under IRC § 2010(c)(3). Future legislation can still change the law.

Can a surviving spouse simply terminate the B trust?

Usually not without authority. The trust instrument, California law, beneficiary rights, fiduciary duties, and tax consequences all matter.

Can a California trust be decanted?

Sometimes. California's Uniform Trust Decanting Act applies only when statutory and document-specific requirements are satisfied. Notice and other limitations may apply.

Could a B trust still be valuable?

Yes. It may provide estate-tax planning, creditor protection, remarriage protection, control over distributions, and multigenerational inheritance planning. Basis cost is only one part of the analysis.

Situation Readiness Briefing

Request a Situation Readiness Briefing to map the control, estate-inclusion, basis, portability, and family-transition exposures in your current structure. You can also begin through the firm's private planning architecture command site or review the wealth-defense command site.

Resources & Authorities

• IRC §1014: Basis of property acquired from a decedent
• IRC §2010: Unified credit and portability
• IRC §2010(c)(3): Basic exclusion amount and inflation adjustment
• IRC §2010(c)(5)(A): Portability election
• IRC §2044: Certain property included in the gross estate
• IRC §2518: Qualified disclaimers
• IRC §121: Exclusion of gain from sale of principal residence
• Treasury Regulation §1.1014-1
• Treasury Regulation §1.1014-10
• Rev. Proc. 2022-32: Late portability election relief
• IRS Revenue Procedure 2025-32
• IRS What's New — Estate and Gift Tax
• California Legislative Information: Probate Code Part 9
• Law Office of James Burns

Last verified: September 16, 2026. Federal and California authorities should be rechecked before implementation.

About James G. Burns

James G. Burns, Esq., LL.M., is a California estate-planning attorney serving families, business owners, executives, and investors in Orange County and throughout Southern California. His practice focuses on estate planning, asset protection, wealth transfer, and tax-sensitive control architecture.

This article is educational and does not replace a review of your trust documents and tax records.

Legal Disclaimer: This content is not legal or tax advice and does not create an attorney-client relationship. Outcomes depend on individual facts, governing documents, applicable law, and professional implementation. Attorney advertising.

IP Disclosure: “Law Office of James Burns,” related names, marks, frameworks, and original editorial content are proprietary to the Law Office of James Burns unless otherwise identified.