Is a bypass trust a legal entity?

A trust is a legal entity separate from the trustee or beneficiary of the trust. 1. Maximum Use of Amounts Exempt from Estate Taxes. Bypass trust provisions allow a married couple to fully utilize the amount exempt from estate taxes in both spouses’ estates instead of only the surviving spouse’s estate.

Do I need a bypass trust to avoid estate tax?

Today’s higher lifetime exemption, and the portability of the exemption from one spouse to another, keep most estates tax free without a bypass trust. But the trust has other important uses. The bypass trust delivers control and certainty over the eventual disposition of assets.

What happens to a bypass trust in a divorce?

The bypass trust. Property in the bypass trust doesn’t belong to the surviving spouse, but he or she has the right to use it, and receive income from it, for life. As long as the value of the assets in this trust is below the federal estate tax exemption (currently $11.7 million), no federal estate tax will be due.

How does a bypass trust work for David and Martha?

A portion of David’s estate (up to $2,000,000 in 2020) passes to the bypass trust. David’s estate pays no federal or state estate taxes. Martha dies in 2020 when her estate is worth $2,000,000. Her estate pays no estate taxes. By using a bypass trust, David and Martha will save approximately $212,980 in estate taxes. 2. Distributions for Spouse.

Do you have to pay taxes on a bypass trust?

The bypass trust. Property in the bypass trust doesn’t belong to the surviving spouse, but he or she has the right to use it, and receive income from it, for life. As long as the value of the assets in this trust is below the federal estate tax exemption (currently $5 million), no federal estate tax will be due.

What assets can be used to fund a bypass trust?

Assets to Fund Trust. The estate can use almost any asset to fund a bypass trust. The surviving spouse and his or her attorney, working together, decide at the time of the first death what assets should be placed into the trust to create the best tax consequences.