A bypass trust is a legal agreement between two spouses to ensure that the surviving one is cared for financially. There is a great deal of information for married couples to learn about this area of estate law.
A trust for couples
A bypass trust is an irrevocable trust for married couples. In the U.S., it helps them avoid paying gift and estate taxes for one spouse when the other dies. The Marital Deduction tax law allows a tax-free transfer. The trustor’s assets are saved and then transferred to the spouse after his or her death.
A form of estate planning
A bypass trust is also known as an A/B living trust that is a long-term type of estate planning. While both spouses are alive, the assets are transferred into a trust. After one spouse passes away, some assets are transferred into Trust A while the other assets are moved into Trust B.
Trust A holds assets that are available until a spouse’s death. Trust B holds the remaining assets, which are free of taxes, remain inaccessible to the surviving spouse and are meant to be passed onto the spouse’s children. The gift and estate taxes are eliminated because the funds are not passed through a will or provided as high-priced gifts.
Building a trust for your future
A bypass trust can be majorly beneficial for married couples who choose it. This plan allows them to avoid paying taxes and save enough money for a lifetime. Avoiding the estate tax is important because the rate could be as high as 45%, which means the government would take half of a person’s earnings.