Estate Planning  Promote Your Business
Estate Planning
ProMatch
Directory
Cost Report
  More Services

Do I Still Need Bypass Trust?






The American Taxpayer Relief Act of 2012 extended and made permanent a number of important tax code provisions that impact estate planning. The two biggest tax provisions made permanent were the federal estate tax exemption (with inflation indexing) and portability of a deceased spouse's unused exclusion amount. As a result of these changes, married couples can shelter up to $10.68 million (in 2014) of net worth from the federal estate tax system. The exemptions not only reduce the number of individuals subject to the estate tax in the future, but portability will render most uses for the bypass trusts irrelevant.

To many practitioners the “Bypass Trust” is viewed as a relic of days past when the federal estate tax exemption (“Federal Exemption”) amount was less than $1 million. Prior to the enactment of ATRA, the Federal Exemption amount had risen from $600,000 in 1997 to $5 million in 2011, with many bumps in the road. Tax experts predicted that the Federal Exemption would be lowered, an easy way to raise federal tax revenue by taxing the wealthy. To combat the uncertainty with the Federal Exemption, wealthy couples utilized bypass trusts to set aside the deceased spouse’s federal exemption amount to ensure it was fully utilized. This provided the surviving spouse with only an entitlement to an income stream and discretionary principal for their lifetimes from the trusts. But the Federal Exemption was preserved in case Congress decided to subsequently lower the amount.

After ATRA, the use of a Bypass Trust became an adverse tax strategy for many couples as a result of compressed trust income tax brackets and the loss of any step-up in basis at death. Today they are predominantly utilized to: (i) shelter future growth from taxation for very high net worth couples; (ii) preserve the Generation Skipping Tax Exemption, (iii) protect assets in the case of divorce or remarriage; (iv) to minimize state estate taxes; and (v) spendthrift protection of the surviving spouse.

If your estate planning documents contain an involuntary Bypass Trust provision and your net worth is less than $10.68 million, you may want to revisit your estate plan with your attorney. Many estate planning practitioners today use a modified disclaimer, at the surviving spouse’s election, to achieve the same benefit.



Be the first to find this article helpful.

About the Author

Marc Soss, Marc J. Soss, Esq.
Sarasota, FL 34236
(941) 928-0310

Contact Author: request info

If you would like to re-print this article, please contact the author.
Need some estate planning help? Find an estate planning attorney near you.
Find Estate Planning Attorneys

Related Topics

Estate Planning Attorneys
Estate Planning: Pre-Need Guardian Designation
Having a Pre-Need Guardian Designation is an essential element of every estate plan.

Why Preparing Your Will Should Be Priority
Having a Will prepared may not seem important to some people. There are seven out of ten...

The Importance of Having a Last Will and Testament
A Last Will and Testament is something that everyone needs, but 80% of North Americans...

Assets Frozen in $50 Million Lawsuit
Proper estate planning can provide asset protection for affluent families.

Estate Planning Missed Opportunities
How will others step into your shoes when you are not there? Make certain you do estate...

Need some estate planning help? Find an estate planning attorney near you.

Other Related Topics

Are Your Legal Documents in Order?
At the start of the year, we are planning for our futures. It is a good time to get your...

Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010
Summay of the estate and gift tax law for 2011 and 2012

Three Things You Should Never Say To The IRS
IRS/Tax Lawyer Jeffrey T. Jones discusses how you must be very careful about what you...

Editorial Disclaimer: The views expressed in articles published on this website are those of the authors alone. They do not represent the views or opinions of this website or its staff. The articles on this site do not constitute a recommendation or endorsement with respect to any views, company, or product. Authors affirm that article submissions are their original content or that they have permission to reproduce.

Free Cost Estimates   |   Estate Planning Attorneys Directory   |   Estate Planning Cost Report   |   Free Business Listing



Home   |   Articles & Videos   |   Affiliates   |   Networking Groups   |   Search by Category   |   Professionals

Terms of Use   |   Privacy   |   About Us   |   Contact Us   |   Member Login

© 2003-2014 - VentureStreet, LLC

Join Our Business Network