Bypass Trusts

A bypass trust is a legal and financial entity set up to protect the wealth of a family from death taxes (estate taxes).

Who Needs a Bypass Trust?

Any family whose assets exceed the maximum exclusion amount may need a bypass trust.

How Does a Bypass Trust Work?

A person (the decedent) provides that some of his/her wealth will be placed into a bypass trust upon their death. This provision may be included in the decedent's Last Will and Testament. The amount going into the bypass trust is frequently equal to the exclusion amount for the year of death. At death, the amount is transferred into the bypass trust and the remaining funds typically go to the surviving spouse or to a marital trust.

When the surviving spouse dies, the children receive  both the bypass trust assets and the surviving spouse's assets. Since assets in the bypass trust did not belong to the surviving spouse, they are not included in her/his estate. This may save a substantial amount of estate taxes.

Definition of a Bypass Trust

Disclaimer: This website was established for educational purposes only. It does not give professional advice of any kind. Tax laws change frequently. You should work with competent legal and accounting professionals to determine the wealth protection strategies best for your particular situation.