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Q.What Happens If A Bypass Trust is not Properly funded or administered?
A.If the surviving spouse fails to properly fund a bypass trust it will never come into existence and thus will not provide any tax benefits. Similarly, if the surviving spouse fails to properly administer the bypass trust after the death of the first spouse, the bypass trust will provide no tax reduction benefit to the estate of the surviving spouse. The bypass trust must be properly funded and administered. The surviving spouse must be sure to file the bypass trust's annual income tax returns and to prepare annual accountings. The failure to properly administer a bypass trust will lead to its assets being included in the estate of the surviving spouse for federal estate tax purposes.
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