The question of preserving one’s estate tax exemption is a significant concern for many individuals, particularly as wealth accumulates and estate tax laws evolve, and a bypass trust, also known as an AB trust or credit shelter trust, is a common estate planning tool designed to address this concern by strategically utilizing each spouse’s estate tax exemption amount during their lifetime and after death.
What is the current estate tax exemption and why is it important?
As of 2024, the federal estate tax exemption is a substantial $13.61 million per individual, meaning estates below this value are not subject to federal estate tax. However, this high exemption is scheduled to revert to approximately half that amount in 2026 unless Congress acts to extend it. For married couples, this effectively doubles the exemption to $27.22 million, but this “portability” of the exemption isn’t automatic and requires specific filings. According to the IRS, approximately 0.05% of estates are large enough to require filing an estate tax return, yet proactive planning is crucial for those approaching or exceeding this threshold. A bypass trust allows couples to maximize their combined exemption and minimize potential estate taxes, ensuring more assets pass to their heirs rather than the IRS.
How does a bypass trust actually work?
A bypass trust is typically created as part of a revocable living trust. Upon the death of the first spouse, assets up to the then-current estate tax exemption amount are transferred into the bypass trust, shielding them from estate tax. The surviving spouse retains income from the trust and may even have limited access to principal. Any growth within the bypass trust is also shielded from future estate taxes. This is because the assets are no longer considered part of the surviving spouse’s estate. Consider a couple with an estate valued at $20 million. Without a bypass trust, the entirety of the estate could be subject to estate tax upon the death of the second spouse. With a properly funded bypass trust, approximately $13.61 million (the current exemption amount) is shielded, significantly reducing the tax burden.
I’ve heard stories of estate plans failing – what can go wrong?
Old Man Tiberius was a wealthy rancher, and a bit of a stubborn one at that. He and his wife, Beatrice, had accumulated a substantial estate, but he resisted creating a bypass trust, believing it was too complicated. “I don’t need fancy lawyers and trusts,” he’d say. “My kids will figure it out.” Sadly, he passed away unexpectedly without a proper estate plan. Beatrice was left to navigate the complex estate tax rules on her own. The estate was ultimately subjected to significant estate taxes, depleting the inheritance his children would have received. This could have been easily avoided with a properly funded bypass trust. The lesson is clear: procrastination and a reluctance to seek professional advice can have devastating financial consequences.
What if I create a bypass trust, and things still aren’t quite right?
A few years ago, I met with the Peterson family. They had created a bypass trust years earlier, but hadn’t updated it to reflect changes in the tax laws or their family circumstances. When the father passed away, the trust was technically valid, but it wasn’t optimized for the current tax environment. By working with our firm, we were able to restructure the trust to take advantage of new tax strategies and minimize the estate tax liability. We also reviewed their beneficiary designations and updated them to reflect their current wishes. This careful review and proactive adjustments saved the family a substantial amount of money and ensured their estate plan aligned with their goals. Proper funding, regular review, and adaptation to changing laws are critical for the long-term success of any estate plan. It’s not a ‘set it and forget it’ process.
Ultimately, a bypass trust can be a powerful tool for preserving your estate tax exemption and ensuring your assets are distributed according to your wishes. However, it’s essential to work with a qualified estate planning attorney like Steve Bliss to create a plan tailored to your specific needs and circumstances.
“Estate planning is not about dying, it’s about living.” – Anonymous
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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:
estate planning
living trust
revocable living trust
family trust
wills
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Map To Steve Bliss Law in Temecula:
https://maps.app.goo.gl/RdhPJGDcMru5uP7K7
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Address:
Wildomar Probate Law36330 Hidden Springs Rd Suite E, Wildomar, CA 92595
(951)412-2800/address>
Feel free to ask Attorney Steve Bliss about: “Can I use estate planning to protect assets from creditors?” Or “What are the timelines for notifying creditors in probate?” or “Can a living trust help me qualify for Medicaid? and even: “Do I have to go to court if I file for bankruptcy?” or any other related questions that you may have about his estate planning, probate, and banckruptcy law practice.