Bypass Trust

BYPASS TRUST

Estate taxes may be saved by avoiding bunching property in the estate of one taxpayer. The idea is to carve out of a deceased spouse's estate the portion of the property exempt from tax (currently $1,000,000). Placing this amount in a maximum benefit bypass trust avoids this tax on the death of the surviving spouse while providing the spouse with money to maintain the standard of living both spouses enjoyed together. Since the trust bypasses estate taxes, it is sometimes called a "bypass trust." Other terms commonly used for this trust are the "exemption equivalent trust" and the "credit shelter trust." The trust may continue for the benefit of any person (typically the settlors' children) following the surviving spouse's death. Finally, the bypass trust can give the surviving spouse all the income, or distribution may be left to the discretion of the trustee.