BYPASS TRUST
Back to GlossaryDefinition
A trust created to ensure that an individual makes use of his applicable estate tax credit. Also known as a B Trust or Credit Shelter Trust
Summary
A Bypass Trust is an estate planning tool that allows married couples to maximize their estate tax exemptions. When the first spouse dies, assets up to the federal estate tax exemption amount are placed in this trust for the benefit of the surviving spouse and children, while the remainder goes directly to the surviving spouse. This strategy 'bypasses' the surviving spouse's estate for tax purposes, effectively doubling the couple's combined estate tax exemption. The trust provides income and limited access to principal for the surviving spouse while preserving the deceased spouse's estate tax credit.
Usage Context
Essential when studying estate planning strategies for married couples, particularly in courses covering estate taxation, trust planning, and wealth transfer techniques. Critical for understanding how to minimize estate tax liability while providing for surviving family members.
Common Confusions
- Thinking the surviving spouse cannot access any assets in the trust
- Confusing it with a simple will that leaves everything to the spouse
- Believing it's only for very wealthy families
- Assuming it's the same as a QTIP Trust
- Thinking the trust becomes unnecessary due to portability provisions
