If you are planning on spring cleaning soon, you may want to add a "trust review" to your to-do list.
With the passage of the One Big Beautiful Bill (OBBB) Act last year, federal estate-tax exemptions have been permanently set at $15 million for individuals and $30 million for couples. For many families, this massive shift has rendered older, complex trust structures not only unnecessary but actively restrictive.
What was once a vital tool for shielding wealth from the IRS may now be a "tax trap" that limits your control and increases your expenses.
The Problem with "A/B" Trusts
In the past, when exemptions were as low as $3.5 million, many couples utilized A/B Trusts (or "bypass trusts") to maximize their tax savings. When one spouse died, the assets were split: half stayed with the survivor, and the other half went into an irrevocable "B" trust.
While this saved on taxes in 2009, today it often creates unnecessary hurdles:
Rigid Control: The surviving spouse may be restricted from changing beneficiaries or accessing principal.
Administrative Burdens: These trusts require separate tax filings and ongoing legal maintenance.
Loss of "Step-Up" in Basis: Assets held in some older irrevocable trusts do not receive a "step-up" in basis when the second spouse passes, potentially leaving heirs with a massive capital gains tax bill.
The High Cost of Inefficiency
Beyond the lack of flexibility, older trusts can be remarkably tax-inefficient. While an individual doesn't hit the top 37% tax bracket until their income exceeds $640,600, a non-grantor trust hits that same 37% bracket at just $16,000 in annual income.
By keeping assets inside an obsolete trust, you may be paying significantly more to the government than if those assets were simply part of your personal estate.
Who Should Care?
Reviewing your estate documents is particularly important for the following groups:
Widows and Widowers: If you are currently managing an irrevocable trust created by a late spouse, you should review if the trust allows for larger withdrawals or "decanting" into a more modern, flexible structure.
Families with Older Plans: If your trust was drafted before 2024, the language likely reflects a tax environment that no longer exists. Canceling or retitling assets now can save your heirs significant stress later.
High-Growth Investors: If your trust holds highly appreciated assets (like tech stocks or real estate), moving them back into your estate could allow your children to inherit them at their current market value, potentially wiping out years of capital gains taxes.
The Bottom Line
The justification for many restrictive trusts has simply vanished under the new law. Estate planning is no longer just about avoiding a 40% death tax; it’s about maximizing flexibility and minimizing income tax for you and your beneficiaries.
If you haven't looked at your trust documents since the OBBB Act was signed, now is the time. We recommend a collaborative review with your legal and financial team to ensure your plan reflects today’s reality, not yesterday's rules.