What is a Bypass Trust?
A bypass trust, also known as a credit shelter trust, is an estate planning tool designed to minimize estate taxes for married couples. It allows one spouse to transfer an amount up to the estate tax exemption limit into the trust, thereby bypassing the surviving spouse’s estate upon death.
How It Works
When the first spouse passes away, their share of the estate is placed into the bypass trust. This trust becomes irrevocable and is not part of the surviving spouse’s estate, allowing it to avoid estate taxes when the surviving spouse later passes away. This is beneficial in preserving wealth for heirs.
Benefits
- Tax Savings: Reduces the overall estate tax burden.
- Asset Protection: Protects assets from creditors.
- Control Over Distribution: Allows the deceased spouse to dictate how the assets are distributed.
Considerations
While a bypass trust can provide significant benefits, it's essential to consult with an estate planning attorney. They can help navigate the complexities and ensure that the trust fits within your overall estate plan.