|
Q.What is a Bypass Trust (Exemption Trust )?
A.A Bypass Trust (also known as B Trust, Credit Shelter Trust, and Exemption Trust) is an irrevocable trust that is created (usually after the death of a spouse) to reduce or eliminate the federal estate tax for a married couple. At present, there is no federal estate tax on the assets left to a surviving spouse if the spouses leave everything to each other and the surviving spouse is a U.S. citizen. Consequently, many married couples have simple wills leaving all of their property directly to each other. Although no estate taxes are owed at the first spouse's death, this can leave substantial assets in the estate of the surviving spouse which when she or he passes could be taxed at 45%. A bypass trust can sharply reduce this potential tax burden.
The creation of a Bypass Trust is generally accomplished in a revocable living trust. A revocable living trust will call for the creation of a new irrevocable bypass trust to hold up to $2,000,000 in 2008 (3,500,000 in 2009, and $1,000,000 in 2011) of the assets of the first spouse to die. Although the amount transferred to the irrevocable bypass trust will be counted toward the value of the first spouse's estate for estate tax purposes, it will not be taxed for federal estate tax purposes when the second spouse dies. This can lead to substantial tax savings.
However, to maintain this tax exemption, the bypass trust must meet certain IRS guidelines and the surviving spouse will be required to have additional trust income tax returns prepared and filed along with annual accountings.
|
|
