A bypass trust, also commonly referred to as an A B trust or credit shelter trust, is an estate planning tool used by married couples to preserve assets and reduce potential estate tax liability. It is most often used to ensure that both spouses can fully utilize their federal estate tax exemptions while still providing for the surviving spouse. The structure works by creating two separate trusts when the first spouse passes away. One trust, often called the survivor’s trust, holds the portion of the estate that is not subject to estate taxes at the time of the first spouse’s death. This trust remains fully accessible to the surviving spouse. The second trust, known as the bypass or credit shelter trust, is funded with assets up to the amount of the federal estate tax exemption and is not considered part of the surviving spouse’s estate for tax purposes. Although the surviving spouse may receive income from the bypass trust and in some cases limited access to principal, these assets are preserved for the next generation and are not included in the surviving spouse’s taxable estate when they pass.
Bypass trusts became especially popular before the introduction of portability, a federal rule that allows a surviving spouse to use any unused portion of their deceased spouse’s estate tax exemption. While portability provides a helpful option for many families, it does not replace the asset protection and long-term control that a bypass trust offers. Assets placed in a bypass trust are typically shielded from creditors, lawsuits, and in some cases, future spouses. This structure also ensures that the original intent of the couple is honored, especially in situations involving blended families or concerns about remarriage after the death of a spouse.
Individuals can establish a bypass trust through wills or revocable living trusts. Many Georgia estate planning attorneys continue to use this strategy for clients who have significant assets or who want to maintain a higher level of control over how their estate is distributed after their passing. The bypass trust can be particularly effective in helping clients plan for complex family dynamics, protect inheritance for children, and reduce the need for probate.
If you would like to learn more about how a bypass trust may benefit your family or if you need assistance with any aspect of estate planning, contact the attorneys at Grissom Law, LLC. Our experienced team is here to help you create a plan that protects your assets, honors your wishes, and provides peace of mind for you and your loved ones.
Disclaimer
This Blog/Web Site is made available for educational purposes only as well as to give you general information and a general understanding of the law, not to provide legal advice. By using this blog site you understand that there is no attorney-client relationship between you and Grissom Law, LLC.