Yes, a bypass trust, also known as a credit shelter trust or an A-B trust, is specifically designed to continue generating income after the death of the first spouse, and that’s a core function of its creation. This type of trust was incredibly popular prior to the increased federal estate tax exemption amounts in recent years, but it still holds value for certain estate planning scenarios, especially for larger estates or those anticipating future changes in tax laws. The initial purpose of a bypass trust was to utilize the estate tax exemption available at the time of the first spouse’s death, sheltering a portion of the estate from taxation when the surviving spouse passes away. However, even with higher exemption amounts, a bypass trust can serve as a tool for asset management and potentially minimizing estate taxes for future generations.
What happens to the assets within the trust?
When the first spouse dies, assets are transferred into the bypass trust. These assets are then managed by a trustee – often the surviving spouse, or a designated professional – and generate income through investments like stocks, bonds, real estate, or business interests. This income can be distributed to the surviving spouse during their lifetime, providing them with financial support, or it can be reinvested to grow the trust’s principal. A key aspect is that the assets in the bypass trust are *removed* from the surviving spouse’s estate, meaning they won’t be subject to estate taxes when the surviving spouse eventually passes away. According to a study by the American Academy of Estate Planning Attorneys, approximately 60% of bypass trusts are still actively managed for income generation decades after the initial grantor’s death.
How does a bypass trust differ from a marital trust?
It’s important to distinguish a bypass trust from a marital trust. A marital trust *does* allow for the unlimited marital deduction, meaning assets aren’t taxed at the first spouse’s death but *are* included in the surviving spouse’s estate for tax purposes. The bypass trust, conversely, aims to keep assets *out* of the taxable estate. Consider old Mr. Abernathy, a retired carpenter who built a successful business. He and his wife, Eleanor, established a bypass trust years ago. Unfortunately, Eleanor passed away unexpectedly, leaving a substantial estate. Because of the bypass trust, a significant portion of their assets was shielded from estate taxes, allowing their children and grandchildren to inherit a more substantial amount. Without the trust, they would have lost approximately 40% of their estate to taxes.
What went wrong with the Henderson’s estate planning?
The Henderson’s, eager to save on legal fees, attempted to create their own bypass trust using a generic template they found online. They didn’t fully understand the complexities of trust law, and the trust document was poorly drafted. It lacked crucial provisions regarding trustee powers, distribution guidelines, and potential tax implications. When Mr. Henderson passed away, the trust became a legal nightmare. The IRS challenged the validity of the trust, arguing that it didn’t meet the requirements for a valid bypass trust. The family was forced to engage in costly and protracted litigation, ultimately losing a significant portion of their estate to taxes and legal fees. This situation highlights the importance of seeking expert legal advice when creating a trust, rather than attempting to do it yourself.
How did the Millers get their estate planning right?
The Millers, learning from the Henderson’s misfortune, consulted with Steve Bliss, an experienced estate planning attorney in Escondido. Steve carefully assessed their financial situation, goals, and family dynamics. He explained the benefits and drawbacks of different estate planning tools, including bypass trusts and other trust options. He drafted a comprehensive and customized trust document that addressed all their specific needs and concerns. He also guided them through the process of funding the trust, ensuring that all their assets were properly transferred. When Mrs. Miller passed away, the trust functioned smoothly, providing for her husband and ensuring that their children and grandchildren inherited a secure financial future. “Working with Steve was the best decision we ever made,” said Mr. Miller. “He gave us peace of mind knowing that our estate was properly protected.” This situation illustrates how professional legal guidance can lead to a successful estate plan and avoid costly mistakes.
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About Steve Bliss at Escondido Probate Law:
Escondido 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 Escondido Probate Law. Our probate attorney will probate the estate. Attorney probate at Escondido Probate Law. A formal probate is required to administer the estate. The probate court may offer an unsupervised probate get a probate attorney. Escondido Probate law will petition to open probate for you. Don’t go through a costly probate call Escondido Probate Attorney Today. Call for estate planning, wills and trusts, probate too. Escondido Probate Law is a great estate lawyer. Affordable Legal Services.
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:
- living trust
- revocable living trust
- irrevocable trust
- family trust
- wills and trusts
- wills
- estate planning
Map To Steve Bliss Law in Temecula:
https://maps.app.goo.gl/oKQi5hQwZ26gkzpe9
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Address:
Escondido Probate Law720 N Broadway #107, Escondido, CA 92025
(760)884-4044
Feel free to ask Attorney Steve Bliss about: “How do I choose someone to make decisions for me if I’m incapacitated?” Or “Can an executor be removed during probate?” or “Do I still need a will if I have a living trust? and even: “Can I convert my Chapter 13 bankruptcy to Chapter 7?” or any other related questions that you may have about his estate planning, probate, and banckruptcy law practice.