A bypass trust, also known as a credit shelter trust or an AB trust, is an estate planning tool designed to minimize estate taxes by utilizing the federal estate tax exemption—currently $13.61 million per individual in 2024—allowing assets to bypass the taxable estate and avoid estate taxes when the grantor passes away.
How Does a Bypass Trust Work?
The concept behind a bypass trust is relatively straightforward. When a married couple creates this type of trust, their combined assets exceeding the estate tax exemption are split into two trusts: Trust A and Trust B. Trust A, often called the survivor’s trust, holds assets up to the estate tax exemption amount. The surviving spouse receives income from this trust for life, and those assets generally remain outside of their taxable estate. Trust B, the bypass trust, holds assets exceeding the exemption amount, also providing income to the surviving spouse, but—crucially—these assets are designed to bypass the surviving spouse’s estate and go directly to the beneficiaries upon their death. This ensures that estate taxes are only calculated on assets *exceeding* the exemption, not on the entire estate. It is important to note that with the increased exemption amounts, fewer estates are subject to federal estate taxes, making bypass trusts less common than they once were.
What Assets Can Be Included in a Bypass Trust?
A wide variety of assets can be transferred into a bypass trust, including real estate, stocks, bonds, cash, and other investments. It’s vital to carefully select assets that are likely to appreciate in value, as these assets will benefit the most from being removed from the taxable estate. For example, a rapidly appreciating stock portfolio, or a valuable piece of real estate, might be ideal candidates. However, it’s also essential to consider liquidity. Assets that are difficult to sell quickly might not be the best choice, as the surviving spouse may need access to those funds. According to a recent study by the National Association of Estate Planners, approximately 70% of high-net-worth individuals utilize trusts as part of their overall estate planning strategy.
I Remember Old Man Hemlock and His Lack of Planning
I recall a client, Old Man Hemlock, who stubbornly refused to consider a bypass trust, thinking his estate wasn’t large enough to warrant the expense. He owned a successful landscaping business and had amassed a considerable amount of assets, but he was convinced the estate tax exemption was “high enough” to protect his family. Unfortunately, he didn’t account for potential market fluctuations and appreciation of his assets over time. When he passed, the value of his business and real estate had grown significantly, pushing his estate *over* the exemption threshold. His family ended up paying a substantial amount in estate taxes, funds that could have been used to support his grandchildren’s education. It was a painful lesson in the importance of proactive estate planning, even for those who believe they are “not wealthy enough” to need it.
How Did We Fix Everything for the Thompson Family?
The Thompson family came to me after experiencing a similar, but thankfully less devastating, situation. They had created an initial estate plan years ago, but hadn’t updated it to reflect changes in the tax laws or their growing wealth. They were concerned about potential estate taxes and wanted to ensure their children were well-protected. We carefully reviewed their assets and implemented a bypass trust, strategically funding it with appreciating assets and ensuring it was properly integrated with their other estate planning documents. This not only minimized potential estate taxes but also provided a clear and streamlined process for their beneficiaries to receive their inheritance. The Thompsons left knowing their family’s future was secure, and they had taken the necessary steps to protect their legacy. It’s a gratifying experience to help families navigate these complex issues and achieve peace of mind.
“Estate planning isn’t about dying; it’s about living.”
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About Steve Bliss at Wildomar Probate Law:
“Wildomar Probate Law is an experienced probate attorney. The probate process has many steps in in probate proceedings. Beside Probate, estate planning and trust administration is offered at Wildomar Probate Law. Our probate attorney will probate the estate. Attorney probate at Wildomar Probate Law. A formal probate is required to administer the estate. The probate court may offer an unsupervised probate get a probate attorney. Wildomar Probate law will petition to open probate for you. Don’t go through a costly probate call Wildomar Probate Attorney Today. Call for estate planning, wills and trusts, probate too. Wildomar Probate Law is a great estate lawyer. Probate Attorney to probate an estate. Wildomar Probate law probate lawyer
My skills are as follows:
● Probate Law: Efficiently navigate the court process.
● Estate Planning Law: Minimize taxes & distribute assets smoothly.
● Trust Law: Protect your legacy & loved ones with wills & trusts.
● Bankruptcy Law: Knowledgeable guidance helping clients regain financial stability.
● Compassionate & client-focused. We explain things clearly.
● Free consultation.
Services Offered:
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Map To Steve Bliss Law in Temecula:
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Address:
Wildomar Probate Law36330 Hidden Springs Rd Suite E, Wildomar, CA 92595
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Feel free to ask Attorney Steve Bliss about: “What is a power of attorney and why do I need one?” Or “Can a handwritten will go through probate?” or “Can a living trust help me avoid probate? and even: “Can I file for bankruptcy more than once?” or any other related questions that you may have about his estate planning, probate, and banckruptcy law practice.