The utilization of a bypass trust, also known as an AB trust or credit shelter trust, has historically been a cornerstone of estate tax planning for married couples, although its effectiveness has been somewhat diminished by recent changes in federal estate tax laws. For decades, the federal estate tax exemption allowed for a certain amount of assets to be transferred at death without incurring tax; anything above that limit was subject to a hefty tax, currently at 40%. A bypass trust was designed to take advantage of this exemption by sheltering a portion of the deceased spouse’s assets, effectively removing them from the taxable estate. While the exemption has significantly increased—reaching $13.61 million per individual in 2024—meaning fewer estates are subject to federal estate tax, a bypass trust can still be a useful tool, particularly for larger estates or those anticipating future decreases in the exemption.
What are the benefits of establishing a bypass trust?
A bypass trust operates by dividing a married couple’s assets into two trusts upon the first spouse’s death. The “marital trust” receives assets up to the applicable exclusion amount (currently $13.61 million in 2024, doubled for a married couple), sheltering these assets from estate tax. The remaining assets go into the “bypass trust,” which is not included in the surviving spouse’s taxable estate. This ensures that the full exemption amount is used for each spouse, potentially saving a significant amount in estate taxes. According to a 2023 study by the American Institute of Certified Public Accountants, approximately 0.05% of estates are subject to federal estate tax, illustrating the high exemption threshold, but emphasizing the importance of planning for those who exceed it. “Proper estate planning isn’t about avoiding taxes altogether,” Steve Bliss often explains to clients, “it’s about minimizing them legally while ensuring your wishes are carried out.”
How did a poorly planned trust affect the Henderson family?
Old Man Henderson, a local orchard owner, thought he’d done everything right. He and his wife, Martha, created a trust decades ago, based on advice from a general practitioner who wasn’t well-versed in estate planning. They simply wanted to make sure Martha was taken care of after he was gone. What they didn’t realize was their trust hadn’t been updated to reflect changes in the tax laws and lacked the necessary provisions for a credit shelter. When Old Man Henderson passed away, the entire estate was considered part of his taxable estate, and his family was hit with a substantial estate tax bill that devoured a significant portion of the orchard’s value. They were forced to sell off valuable land to cover the taxes, something Old Man Henderson specifically wanted to avoid. His children learned a harsh lesson: “A trust created years ago is not necessarily a good trust today.” The Henderson’s experience highlights the importance of regular review and updates to estate plans, especially given the evolving nature of tax laws.
Can a trust protect assets from creditors and lawsuits?
While primarily designed for tax purposes, a bypass trust can also offer some degree of asset protection, depending on the trust’s terms and the applicable state laws. Properly drafted, the trust can shield assets from the surviving spouse’s creditors and potential lawsuits, as the assets are technically owned by the trust itself, not the individual. However, it’s important to note that this protection isn’t absolute, and there are limitations. Some states have “look-back” periods, allowing creditors to access assets transferred into the trust within a certain timeframe before the transfer. Furthermore, fraudulent transfers intended to hide assets from creditors will likely be overturned by a court. According to a 2022 survey by the National Association of Estate Planners, nearly 70% of clients express concerns about protecting their assets from potential liabilities.
How did the Millers successfully utilize a bypass trust?
The Millers, a retired couple with a sizable estate, came to Steve Bliss seeking advice on estate tax planning. They were concerned about potential future decreases in the federal estate tax exemption and wanted to ensure their children wouldn’t be burdened with excessive taxes. Steve guided them through the process of establishing a well-structured bypass trust, carefully tailoring it to their specific needs and goals. When Mr. Miller passed away, the bypass trust successfully sheltered a significant portion of his estate from taxes, allowing the Millers’ assets to pass to their children without a hefty tax bill. The children were incredibly grateful, and the Millers’ wishes were fully carried out. Their story serves as a testament to the power of proactive estate planning and the importance of working with a qualified estate planning attorney. It’s a reminder that “planning isn’t about death, it’s about life, and ensuring the continuity of your legacy.”
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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
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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: “How do retirement accounts fit into an estate plan?” Or “Can I get reimbursed for funeral expenses from the estate?” or “How do I keep my living trust up to date? and even: “Do I need a lawyer to file for bankruptcy?” or any other related questions that you may have about his estate planning, probate, and banckruptcy law practice.