By Pass Trust

By Pass Trust

By: Martin M. Shenkman, CPA, MBA, JD

Who should be a beneficiary of your By Pass Trust?

What is a bypass trust? A bypass trust is a trust that is typically formed after the death of the first spouse in a marred couple. Initially, one may think to just to give all the assets to the surviving spouse, but then when the the survivor passes away, all the assets pile up and have a large estate tax. A bypass trust, also called a unified credit shelter trust, or an applicable exclusion trust, can hold up to $2 million in assets (2008, scheduled to increase in 2009 to $3.5 million), and the surviving spouse can withdraw assets as they need. Note, for state estate tax purposes a lower amount is required.

Who should be a beneficiary?

  • Spouse only. This is simplest and most security for spouse.
  • Spouse and children. Making distributions to kids is a great way to keep surviving spouse's estate small, while still protecting him/her if he/she needs it. Be careful though if there are kids from a previous marriage. In that case consider naming an independent trustee.
  • Spouse, children and others. Others' might include an elderly aunt you provide care for.
  • Spouse, children and grandchildren. Great planning idea to keep surviving spouse's estate lower and help the entire family, but you must allocate GST exemption. While complex, for most its not a big deal since their estates are too small for complex GST planning.
  • Children only. Fine if spouse will never need the money, but is that really advisable? Perhaps only for the super-wealthy.
  • The above is a summary of a radio show on MMFN Money Matters Financial Network, on July 27 with host Gary Goldberg, of Gary Goldberg Planning Services, Inc. in Montebello, New York, and his guest Martin M. Shenkman, Esq. an estate planner in Paramus, New Jersey. Listen to the audio clip of this segment on

    Disclaimer: Law Made Easy Press® provides practical and legal, tax, estate and financial information for educational purposes only. The goal is to help you best work with your professionals to save costs, and to obtain better service and results as an informed consumer. There is no assurance that the laws or sample documents are current, that the forms will achieve the desired goal in all circumstances. Laws change frequently and vary from location. Therefore, you should always consult with a local attorney, accountant, or other expert.

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