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Pass on the Bypass? Is a Bypass Trust Necessary?

September 17, 2013

Filed under: Asset Protection Planning,Estate Planning,Estate Taxes,Trusts — Neel Shah @ 9:00 am

Many people wonder whether bypass trusts are still necessary for asset protection. Even after the 2013 unified credit changes have been implemented for estate planning, making the transfer of assets between spouses easier, a recent article explains why bypass trusts may still be a good idea for certain estate plans.

One benefit of a bypass trust is that it protects assets from creditors and lawsuits. The provisions of a bypass trust that offer this protection depend on the state that the trust was created in and the state that the surviving spouse currently resides in.

Bypass trusts are also a good tool because they can transfer assets to more than one generation. A bypass trust can be set up to benefit the surviving spouse for the remainder of his or her life, then provide assets for his or her children and grandchildren. Bypass trusts can be written to include various other special benefits. These benefits can include professional management, provisions to limit spending, and provisions to avoid probate.

Finally, bypass trusts are helpful in avoiding estate taxes on appreciating assets. For example, imagine that a person put $5.25 million worth of assets in a bypass trust. Further, imagine that the $5.25 million grows to a value of over $10 million while in the trust. In this scenario, the entire $10 million will avoid estate taxes. As a result, bypass trusts may still be essential for particular estate plans.

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