Frequently Asked Questions Regarding Bypass Trusts

Q: What is a bypass trust?

A: A bypass trust is an estate planning device. This allows each of the spouses in a marriage to maintain their individual estate tax exemption which is $5,340,000 for 2014. Without the trust, one spouse inherits from the other spouse and their $5,340,000 estate tax exemption is lost.

Q: When one spouse dies can the other spouse access all of the trust assets during his or her lifetime?

A: No. The spouse cannot have an ability to withdraw principal. He or she can have the rights to pay for health, education, maintenance and support. He or she can also withdraw 5% of the principal or $5,000 whichever is greater in each annual year.

Q: Does the surviving spouse have the ability to distribute the trust assets upon his or her death?

A: Yes, to an extent. The spouse cannot utilize the funds in the trust to pay his creditors, estate expenses or to keep the funds for himself. However, he may have the right to name in his will a person who will receive the benefits of the trust upon his death. This can be children of the parties or other family members. The trust can also specifically state the surviving spouse has no ability to make distributions of trust assets.