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Bypass trusts a consideration in estate planning

Estate planning has many facets, with a wide variety of tools available for consideration. One tool is trusts, typically experienced as a great way to ensure that money gets to intended beneficiaries and is used for specific purposes across specific periods of time. Trusts can be a critical part of estate planning, but it is important to use them well by understanding their advantages.

Bypass trusts in specific have historically been used by husbands and wives seeking to reduce the tax liability associated with some other ways of dealing with finances. The trusts have been a way for a husband or wife who passes away first to help their surviving spouse be provided for. In addition, some of the money involved can be sheltered from tax liability with the surviving spouse's personal estate tax exclusion. That way, there would be more money for that spouse to eventually pass on to the couple's children.

This worked well for many. However, portability was applied to situations like this starting in 2012. This allowed a surviving spouse to get a full estate tax exclusion just on behalf of their deceased spouse and themselves. Of course, this makes bypass trusts less necessary for the purpose of minimizing tax liability.

Even so, many continue to maintain such trusts. That is good in cases where they can still be effective tools for transferring control of assets to surviving spouses and sons and daughters. However, it is really important to make absolutely sure that the trusts are fully funded.

A qualified attorney with experience in this area can help to make sure that full funding happens. They can do this by sitting down with the couple and going over the key amounts. That way, all the numbers line up, and the desired arrangements come to pass.

Source:, "Bypass trusts after portability" Tom Nawrocki, Jul. 16, 2014

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