Establishing an effective estate plan is one of the best ways to make sure that your assets are properly handled following your death. Based on the exact details of your situation, it is worth considering whether a bypass trust would be able to help achieve your goals. 

The following will take a brief look at what bypass trusts are as well as some of the benefits that can be taken advantage of through the use of this estate planning tool. 

How Bypass Trusts Operate

Bypass trusts are legal agreements that offer married couples the opportunity to avoid estate taxes after a spouse passes away.

When one spouse passes away, an estate’s assets are divided into two separate trusts. One trust is categorized as marital, while the second is a bypass trust. Marital trusts are revocable and belong to the surviving spouse.

The terms of revocable trusts are capable of being changed by the individual who created the trust. Bypass trusts, however, are irrevocable and their terms cannot be changed. 

Surviving spouses often act as the trustees of bypass trusts. It is the duty of a trustee to make sure that assets from a couple’s estate are appropriately divided into each part of a trust.

Reasons to Use a Bypass Trust in Estate Planning

Bypass trusts are capable of minimizing federal estate taxes for married individuals who have a number of valuable assets. If assets do not exceed the federal estate tax threshold of $11.4 million for single individuals or $22.8 for married couples, it is possible to escape federal estate tax altogether. 

Surviving spouses are able to extend taxes and credit shelters benefits to heirs. Secondary trusts can also hold assets that will later be passed to children or other surviving loved ones. 

Additionally, assets in a bypass trust allow a surviving spouse to avoid probate, which saves substantially on money and time. 

Potential Obstacles with Bypass Trusts

While bypass trusts can be valuable for some people, they are not a good idea for everyone. 

Many people discover that creating a bypass trust is both expensive as well as time consuming. Consequently, if a person does not have extensive assets, bypass trusts might not be particularly worthwhile. 

Another complication of bypass trusts is that they might require ongoing maintenance. A bypass trust does not give a spouse free rein over assets in the irrevocable section of the trust, but might cover the revocable portion. Instead, there are often restrictions regarding the amount of assets that can be drawn from the trust. 

Another challenge is that bypass trusts are not always capable of avoiding state estate taxes. As a result, it is sometimes the case that a surviving spouse might owe estate tax at the state level. 

Speak with an Experienced Estate Planning Lawyer

The estate planning process is complex. Fortunately, an experienced attorney can help make sure that you create an effective estate planning strategy, which may or may not include the use of a bypass trust. 

Contact attorney Jim A Lyon today to schedule a free consultation.