diff --git a/src/wp-includes/category-template.php b/src/wp-includes/category-template.php
index 355b46b2e9..72b3e65d23 100644
--- a/src/wp-includes/category-template.php
+++ b/src/wp-includes/category-template.php
@@ -498,7 +498,9 @@ function wp_dropdown_categories( $args = '' ) {
  *     @type string       $feed_image            URL of an image to use for the feed link. Default empty string.
  *     @type int          $child_of              Term ID to retrieve child terms of. See {@link get_terms()}. Default 0.
  *     @type array|string $exclude               Array or comma/space-separated string of term IDs to exclude.
- *                                               See {@link get_terms()}. Default empty string.
+ *                                               If `$hierarchical` is true, descendants of `$exclude` terms will also
+ *                                               be excluded; see `$exclude_tree`. See {@link get_terms()}.
+ *                                               Default empty string.
  *     @type array|string $exclude_tree          Array or comma/space-separated string of term IDs to exclude, along
  *                                               with their descendants. See {@link get_terms()}. Default empty string.
  *     @type bool|int     $echo                  True to echo markup, false to return it. Default 1.
@@ -536,8 +538,19 @@ function wp_list_categories( $args = '' ) {
 	if ( !isset( $r['pad_counts'] ) && $r['show_count'] && $r['hierarchical'] )
 		$r['pad_counts'] = true;
 
+	// Descendants of exclusions should be excluded too.
 	if ( true == $r['hierarchical'] ) {
-		$r['exclude_tree'] = $r['exclude'];
+		$exclude_tree = array();
+
+		if ( $r['exclude_tree'] ) {
+			$exclude_tree = array_merge( $exclude_tree, (array) $r['exclude_tree'] );
+		}
+
+		if ( $r['exclude'] ) {
+			$exclude_tree = array_merge( $exclude_tree, (array) $r['exclude'] );
+		}
+
+		$r['exclude_tree'] = $exclude_tree;
 		$r['exclude'] = '';
 	}
 
diff --git a/tests/phpunit/tests/category/wpListCategories.php b/tests/phpunit/tests/category/wpListCategories.php
index 56ae395a9e..91031a667f 100644
--- a/tests/phpunit/tests/category/wpListCategories.php
+++ b/tests/phpunit/tests/category/wpListCategories.php
@@ -264,4 +264,47 @@ class Tests_Category_WpListCategories extends WP_UnitTestCase {
 
 		$this->assertContains( '<li class="categories">Categories', $found );
 	}
+
+	/**
+	 * @ticket 12981
+	 */
+	public function test_exclude_tree_should_be_respected() {
+		$c = $this->factory->category->create();
+		$parent = $this->factory->category->create( array( 'name' => 'Parent', 'slug' => 'parent' ) );
+		$child = $this->factory->category->create( array( 'name' => 'Child', 'slug' => 'child', 'parent' => $parent ) );
+
+		$args = array( 'echo' => 0, 'hide_empty' => 0, 'exclude_tree' => $parent );
+
+		$actual = wp_list_categories( $args );
+
+		$this->assertNotContains( '<li class="cat-item cat-item-' . $parent . '">', $actual );
+
+		$this->assertNotContains( '<li class="cat-item cat-item-' . $child . '">', $actual );
+	}
+
+	/**
+	 * @ticket 12981
+	 */
+	public function test_exclude_tree_should_be_merged_with_exclude() {
+		$c = $this->factory->category->create();
+		$parent = $this->factory->category->create( array( 'name' => 'Parent', 'slug' => 'parent' ) );
+		$child = $this->factory->category->create( array( 'name' => 'Child', 'slug' => 'child', 'parent' => $parent ) );
+		$parent2 = $this->factory->category->create( array( 'name' => 'Parent', 'slug' => 'parent2' ) );
+		$child2 = $this->factory->category->create( array( 'name' => 'Child', 'slug' => 'child2', 'parent' => $parent2 ) );
+
+		$args = array( 'echo' => 0, 'hide_empty' => 0, 'exclude_tree' => $parent );
+
+		$actual = wp_list_categories( array(
+			'echo' => 0,
+			'hide_empty' => 0,
+			'exclude' => $parent,
+			'exclude_tree' => $parent2,
+		) );
+
+		$this->assertNotContains( '<li class="cat-item cat-item-' . $parent . '">', $actual );
+		$this->assertNotContains( '<li class="cat-item cat-item-' . $parent2 . '">', $actual );
+		$this->assertNotContains( '<li class="cat-item cat-item-' . $child . '">', $actual );
+
+		$this->assertNotContains( '<li class="cat-item cat-item-' . $child2 . '">', $actual );
+	}
 }