Along with a Will, many people choose to incorporate one or more trusts into their estate plan. Trusts come in many forms and are used to accomplish numerous different goals such as probate avoidance or decreasing tax obligations. One popular type of trust is the bypass trust. Understanding what a bypass trust is can help you decide if one is right for you.
- A bypass trust is also known as a credit shelter trust. It is called a bypass trust because it helps you “bypass” estate taxes. By the same token, it is referred to as a credit shelter trust because it helps to shelter the lifetime credit against estate taxes.
- A bypass trust is used by married couples
- When one spouse dies, his or her assets are placed into the bypass trust which then allows them to be passed on to beneficiaries when the surviving spouse dies free from estate taxes.
- The surviving spouse has the use of the income generated from the trust while he or she is alive
- The surviving spouse may also be able to use the principle for things such as medical treatment and support if necessary.
- There is a limit to how much can be placed in a bypass trust
- Very specific language must be used in order for a trust to qualify as a bypass trust
A bypass trust can literally save an estate millions of dollars given the high rate at which estates are taxed.
