Planning For A Secure Future

Bypass trusts

On Behalf of | Oct 27, 2022 | Trusts

The bypass trust is an advanced estate planning tool that can help high-net-worth married couples in California maximize their tax savings. It involves multiple specifically-crafted trusts with different tasks.

The power of the bypass trust

The basis of the bypass is the creation of two different trusts, which are usually referred to as A and B. The two trusts allow the couple to reduce how much estate tax will be due on their combined assets if they are used properly. First, the couple fills up the B trust with assets up to the value of the estate tax exemption. This changes from year to year but right now is just over $12 million. This trust contains assets marked to go directly to the couple’s heirs. The A trust gets the leftover assets. When one spouse dies, the survivor will use the assets in the A trust for their needs and expenses. Since the A trust is smaller, there won’t be any estate tax due. When the survivor also dies, the B trust assets go directly to the heirs, skipping probate and avoiding estate tax.

Tax benefits

The estate tax doesn’t kick in until the value of the estate is quite high, but since it can be a high percentage of the asset value, avoiding it as much as possible can yield significant savings. A bypass trust is also useful for lowering the amount of assets that can go to probate court.

A bypass trust is one of the more complex estate planning tools, but it has several important benefits that might save large amounts of money.