A more thorough explanation:

A bypass trust, also known as an AB trust or a credit shelter trust, is a legal tool used by wealthy married individuals to maximize their estate tax exemptions. This strategy involves creating two separate trusts after one spouse passes away.

For example, let's say a husband and wife have a combined estate worth $15 million. The husband passes away, and his portion of the estate, up to the applicable exclusion amount (currently $11.7 million), is put into Trust B (the bypass trust). This trust is irrevocable and will pass to beneficiaries other than the surviving spouse, usually their children. The surviving spouse must follow the trust's plan without overly benefiting from its operation, but this trust often passes income to the surviving spouse to live on for the rest of their life. The surviving spouse's portion of the property and sometimes the leftover assets of the deceased spouse above the exclusion amount will be put into Trust A. The surviving spouse has control over this trust and may use it as they wish. When the surviving spouse passes, both trusts pass to their named beneficiaries.

The purpose of a bypass trust is to save on estate taxes, but only in limited circumstances. Before the Tax Cuts and Jobs Act, many individuals used this to take full advantage of their estate tax exclusions, which were less than $6 million. After the Tax Cuts and Jobs Act, this tool can only be beneficial in limited circumstances because the exclusion now is over $11 million, which applies to few individuals. However, many states have no gift taxes or have estate taxes that are not portable, which might make bypass trusts still beneficial to wealthy couples.

It is important to note that using a bypass trust requires specific wording in the creation of these trusts and limits on the surviving spouse's use of the bypass trust. Additionally, given the high fees involved in planning, managing, and paying for attorney fees for bypass trusts, often a bypass trust may be more costly than the estate tax itself, and sometimes, the estate would incur less taxes outside of the bypass trust by incurring a stepped-up tax basis for property.