A bypass trust is typically created as part of an A/B Living trust estate plan after the death of the first spouse to die. A living trust (revocable living trust or inter vivos trust) is a type of trust created for the purpose of holding ownership to an individuals assets during the persons lifetime and for distributing those assets after death. ...
The bypass trust receives property as specified in the trust document - the bypass trust may receive all of the propery of the decedent spouse, or half of the spouses' co-owned property, or it may receive enough property to fully utilize the decedent's estate tax exclusion.
The bypass trust is typically created to achieve one or more of the following goals:
To maximize the use of the decedent's estate tax exclusion amount, in order to minimize estate tax upon the death of the surviving spouse
To ensure that the decedent spouse's property will be disposed of in accordance with the decedent's wishes, even if the surviving spouse remarries or chooses to adopt a different estate plan for the surviving spouse's assets.
The surviving spouse's share is allocated to the Survivor Trust and remains the property of the surviving spouse.
At the first spouse's death, $1,500,000 of his or her assets is allocated to the BypassTrust, $500,000 is allocated to the QTIP Trust, and the surviving spouse's entire $2,000,000 is allocated to the Survivor Trust.
Thus, as with the BypassTrust, the surviving spouse can be prevented from leaving the remaining QTIP Trust property to a new spouse or someone else the first spouse may not have wished to receive his or her property.
Under the terms of the trust, the surviving spouse would receive part or all of the income from the trust's assets for life, and upon the surviving spouse's death, the remainder would be paid to the next generation of heirs.
If, under the terms of the trust, the surviving spouse is given no special or general powers of appointment except the right to receive trust income for life with the remainder to be paid to the couple's heirs, none of the trust's assets can be drawn into the surviving spouse's estate.
A nonspouse trustee could be directed by the trust agreement to appoint additional funds to the surviving spouse whenever the trustee, in his or her sole discretion, deems it appropriate for happiness or comfortÑwithout causing any remaining trust assets to be included in the surviving spouse's estate.
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