For married couples, estate planning isn’t just about what happens *after* they’re gone; it’s about maximizing what their loved ones receive and minimizing potential tax burdens—and a bypass trust, also known as a credit shelter trust or an AB trust, is a powerful tool to achieve just that. The federal estate tax exemption is currently quite high – $13.61 million per individual in 2024 – but this figure is subject to change, and many estates, while not exceeding that amount today, could potentially do so with continued growth or future appreciation of assets. A bypass trust operates by utilizing this exemption for each spouse, ensuring that no estate taxes are paid on assets held within the trust. Essentially, it’s a strategy to double the exemption available to a married couple, a significant benefit for those with substantial wealth.
What are the benefits of establishing a bypass trust?
A bypass trust functions by dividing a married couple’s estate into two trusts upon the first spouse’s death. The “A” trust, often called the survivor’s trust, holds assets up to the federal estate tax exemption amount. The surviving spouse retains income from this trust and can even access principal under certain circumstances. The “B” trust, the bypass trust itself, holds assets *above* the exemption amount. Because the assets in the bypass trust are not included in the surviving spouse’s estate, they avoid estate taxes when the surviving spouse passes away. “It’s like creating a separate pocket of wealth that’s shielded from future estate tax liability,” explains Steve Bliss, a Living Trust and Estate Planning Attorney in Escondido. Recent data suggests that only about 5% of US estates are large enough to be subject to federal estate taxes, but those estates can face significant tax burdens without proper planning.
How does a bypass trust differ from a joint trust?
Many couples initially consider a joint revocable living trust, where all assets are held jointly and pass directly to the surviving spouse upon the first death. While simple, this approach doesn’t offer the same tax benefits as a bypass trust. With a joint trust, all assets are included in the surviving spouse’s estate, potentially leading to substantial estate taxes. A bypass trust, in contrast, segregates assets, utilizing both spouses’ exemptions. I recall working with a couple, the Harrisons, who initially opted for a joint trust. Years later, their estate had grown considerably due to successful investments and property appreciation. By the time the first spouse passed away, their estate was nearing the estate tax threshold. It was a scramble to amend their plan, and while we managed to minimize taxes, it involved a costly and stressful legal process. This highlighted the importance of proactive estate planning with a tool like a bypass trust.
Is a bypass trust right for everyone?
While bypass trusts offer significant tax advantages, they aren’t necessarily suitable for all couples. They can be more complex to administer than a simple joint trust, requiring meticulous record-keeping and potentially involving ongoing professional fees. Also, with the current high federal estate tax exemption, some couples may not need a bypass trust. However, even with a high exemption, a bypass trust can still provide benefits like creditor protection and asset management for beneficiaries. I remember advising a client, Mr. Abernathy, who initially dismissed a bypass trust, believing his estate wouldn’t reach the taxable threshold. Years later, after a period of substantial market growth, his estate exceeded expectations. Fortunately, he had the foresight to revisit his plan and establish a bypass trust, ultimately saving his family a considerable amount in estate taxes.
What happens if I don’t establish a bypass trust?
Without a bypass trust, a married couple’s estate tax liability can be significantly higher. The surviving spouse inherits everything, and the entire estate is subject to estate taxes upon their death. Currently, the federal estate tax rate is 40%, meaning a substantial portion of the estate could be lost to taxes. In California, there’s also a state estate tax, adding to the overall tax burden. However, proper planning with a bypass trust can ensure that assets are protected and passed on to future generations efficiently. Steve Bliss emphasizes, “Estate planning is about more than just avoiding taxes; it’s about ensuring your wishes are carried out and providing for your loved ones. A bypass trust is a powerful tool to achieve these goals, but it’s important to work with an experienced attorney to determine if it’s the right fit for your specific circumstances.” A well-crafted bypass trust can offer peace of mind, knowing that your family will be financially secure for years to come.
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About Steve Bliss at Escondido Probate Law:
Escondido Probate Law is an experienced probate attorney. The probate process has many steps in in probate proceedings. Beside Probate, estate planning and trust administration is offered at Escondido Probate Law. Our probate attorney will probate the estate. Attorney probate at Escondido Probate Law. A formal probate is required to administer the estate. The probate court may offer an unsupervised probate get a probate attorney. Escondido Probate law will petition to open probate for you. Don’t go through a costly probate call Escondido Probate Attorney Today. Call for estate planning, wills and trusts, probate too. Escondido Probate Law is a great estate lawyer. Affordable Legal Services.
My skills are as follows:
● Probate Law: Efficiently navigate the court process.
● Estate Planning Law: Minimize taxes & distribute assets smoothly.
● Trust Law: Protect your legacy & loved ones with wills & trusts.
● Bankruptcy Law: Knowledgeable guidance helping clients regain financial stability.
● Compassionate & client-focused. We explain things clearly.
● Free consultation.
Services Offered:
- estate planning
- bankruptcy attorney
- wills
- family trust
- irrevocable trust
- living trust
Map To Steve Bliss Law in Temecula:
https://maps.app.goo.gl/oKQi5hQwZ26gkzpe9
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Address:
Escondido Probate Law720 N Broadway #107, Escondido, CA 92025
(760)884-4044
Feel free to ask Attorney Steve Bliss about: “Can I change my will after I’ve written it?” Or “How can joint ownership help avoid probate?” or “What happens if my successor trustee dies or is unable to serve? and even: “Do I need a lawyer to file for bankruptcy?” or any other related questions that you may have about his estate planning, probate, and banckruptcy law practice.