For estate planning in Pennsylvania, bypass trusts are an advanced tool for minimizing the tax burden on a couple’s assets as they pass them down to the next generation. They are best suited for high net-worth couples or those with children from prior marriages.
A bypass trust strategy is a form of estate planning that uses two different trusts. These are generally called the A trust and the B trust. The trusts go into action once the first spouse of the couple passes away. The most expensive assets, including any assets that are intended to go to the heirs of the couple, go into the B trust. This trust will hold assets up to and not exceeding the estate tax limit. The A trust gets the leftover assets, including any that the surviving spouse will use to live on. Under normal circumstances, estate taxes on the whole set of assets would be due when the second spouse dies. By splitting the assets between the two trusts, the family can avoid part of those taxes.
Why use a bypass trust?
Most families won’t need a bypass trust for their estate planning. The costs of setting it up exceed the tax benefits. Bypass trusts are ideal for managing large estates or for carefully selecting heirs when there are children from past marriages who the couple wants to get their own separate assets. Moreover, any errors in setting them up can cause problems with asset ownership or negate the tax benefits.
The power of a bypass trust is in how it can double-dip on a married couple’s tax exemptions to avoid estate taxes. If you have questions about setting up trusts for advanced estate planning, contact an experienced estate planning attorney today.