What is an a bypass trust?
A bypass trust (also called an “A/B trust” or a “credit shelter trust”) was designed to prevent the estate of the surviving spouse from having to pay estate tax.
Does your estate plan contain an unnecessary bypass trust?
To find out if your estate plan contains an unnecessary bypass trust or if you need one, consult with your attorney. For more about bypass (or credit shelter) trusts, click here. Why Plan Your Estate?
How does a bypass trust work under the marital deduction?
The transfer of the settlor’s assets to the bypass trust for the benefit of the spouse is a tax-free transfer under the currently unlimited Marital Deduction.
Can a bypast Trust minimize federal estate tax?
A bypast trust can minimize federal (and state) estate tax for married couples who have substantial assets. With the family or B portion of the trust, assets up to an annual exemption limit. are not subject to federal estate tax. For 2019, that limit is $11.4 million, which doubles to $22.8 million for married couples.
Does a bypass trust avoid inheritance tax?
A bypass trust also doesn’t guarantee exemption from state estate tax is always avoidable. Depending state laws, it’s possible that you or your spouse may still owe estate tax at the state level on assets received when either of you passes away.
Can a surviving spouse be a trustee of a bypass trust?
The surviving spouse may act as trustee of a bypass trust or name someone else trustee. It’s the trustee’s responsibility to ensure that assets from the couple’s estate are divided appropriately into each part of the trust. The trustee also oversees asset management, as outlined by the terms of the trust.
What happens to a family trust when the first spouse dies?
When the first spouse passes away, their share of the estate goes into the family or B trust. The surviving spouse doesn’t own those assets, but can access the trust during their lifetime and receive income from it. The portion of the estate that doesn’t go into the B trust is placed into the A or marital trust.
How does a bypass trust work for David and Martha?
A portion of David’s estate (up to $2,000,000 in 2020) passes to the bypass trust. David’s estate pays no federal or state estate taxes. Martha dies in 2020 when her estate is worth $2,000,000. Her estate pays no estate taxes. By using a bypass trust, David and Martha will save approximately $212,980 in estate taxes. 2. Distributions for Spouse.