A-B Trusts in Australia: Estate Planning and Family Wealth in 2026

An A-B trust, sometimes called a split trust or bypass trust, is an estate planning arrangement designed to help married couples manage the transfer of assets after one partner passes away. While the term "A-B trust" is more commonly used in other jurisdictions, similar outcomes can be achieved in Australia through careful will drafting and the use of testamentary trusts.

When the first spouse dies, the estate is divided into two separate trusts:

• Trust A (Survivor’s Trust): This trust holds the surviving spouse’s share of the assets. The surviving spouse typically has full control over these assets and can use them as needed.

• Trust B (Bypass or Family Trust): This trust holds the deceased spouse’s share. It is generally irrevocable, meaning its terms cannot be changed. The assets in Trust B are managed for the benefit of the surviving spouse during their lifetime, and then pass to the next generation or other nominated beneficiaries.

The main advantage of this structure is that it can help ensure that the deceased spouse’s wishes are respected, particularly in blended families or where asset protection is a concern.

Although Australia does not have a federal estate or inheritance tax, there are several reasons why A-B trusts are being considered by Australian families in 2026:

Capital Gains Tax (CGT) Planning

Changes in tax policy and increased scrutiny on family trusts have made it more important to plan for potential capital gains tax liabilities. While A-B trusts do not eliminate CGT, they can help manage how and when assets are transferred, which may influence CGT outcomes for beneficiaries.

Blended Families and Second Marriages

With more Australians entering second marriages or forming blended families, there is a greater need to ensure that children from previous relationships are not unintentionally excluded from inheritances. An A-B trust structure can provide for a surviving spouse while also protecting the interests of children from earlier relationships.

Centrelink and Aged Care Means Testing

Some families use trusts to help manage how assets are assessed for Centrelink or aged care means testing. While not all assets in a trust are exempt from assessment, the structure and timing of distributions can influence eligibility for certain entitlements.

Intergenerational Wealth Transfer

A-B trusts can help protect family wealth from risks such as creditors, bankruptcy, or relationship breakdowns. By locking in certain protections, families can have greater confidence that assets will reach their intended beneficiaries.

Recent regulatory changes, including increased attention from the Australian Taxation Office (ATO) on trust distributions, highlight the importance of careful planning and ongoing review of estate structures.

Establishing an A-B trust structure in Australia involves several key steps and should always be done with professional legal advice. Here is a general overview of the process:

1. Engage an Estate Planning Lawyer

Australian law does not specifically refer to "A-B trusts" by name. Instead, similar outcomes are achieved through the use of testamentary trusts, which are created by a will and come into effect upon death. An experienced estate planning lawyer can help draft the necessary documents to achieve your goals.

2. Draft the Will

The will must clearly state how assets are to be divided upon the first spouse’s death. This typically involves specifying that the estate is to be split between a survivor’s trust (A) and a family or bypass trust (B).

3. Appoint Trustees

Trustees are responsible for managing the assets in each trust. The surviving spouse is often appointed as trustee of both trusts, but co-trustees or independent trustees may be chosen to provide additional oversight or to help manage potential conflicts of interest.

4. Specify Beneficiaries and Terms

The will should outline who will benefit from each trust and under what conditions. This can include children from previous relationships, other family members, or even charities. The terms can be tailored to suit the family’s needs, such as providing income to the surviving spouse for life while preserving the capital for children.

5. Consider Costs and Ongoing Administration

Setting up these structures involves legal and administrative costs, which can vary depending on complexity. Ongoing trust management and tax compliance should also be factored in, as trusts require regular administration and reporting.

Imagine a couple, each with children from previous relationships, who want to ensure that both the surviving spouse and their respective children are looked after. By establishing an A-B trust structure in their wills, they can arrange for the surviving spouse to have access to income from the deceased spouse’s share of assets, while ensuring that the capital is ultimately preserved for the deceased’s children. This approach can help balance the needs of blended families and provide peace of mind for all parties involved.

ATO Scrutiny

The ATO continues to pay close attention to trust arrangements, particularly where tax minimisation is a significant factor. Transparent management and clear documentation are essential to avoid unintended tax consequences or disputes.

Family Law and Succession Risks

Trust assets may be considered in family law proceedings or contested estates if not properly structured. It is important to review trust arrangements regularly, especially after significant life events such as marriage, divorce, or the birth of children.

Integrating Superannuation

As superannuation balances grow for many Australians, integrating superannuation death benefits with testamentary trusts is becoming more common. This can help provide additional flexibility and protection for beneficiaries.

Ongoing Review

Estate planning is not a set-and-forget process. Changes in family circumstances, legislation, or tax policy can all impact the effectiveness of an A-B trust structure. Regular reviews with your legal and financial advisers are recommended to ensure your estate plan remains aligned with your wishes and current law.

A-B trusts offer a flexible and protective approach to estate planning for Australian families, especially those with complex needs or significant assets. While the structure requires careful planning and professional advice, it can help ensure that your assets are managed and distributed according to your wishes, both during your lifetime and after. As 2026 brings continued changes in tax policy and family dynamics, now is a good time to review your estate plan and consider whether an A-B trust structure could support your goals.