The by-pass trust is the trust that holds the first spouse to die’s assets up to any unused unified credit amount. This year, that amount is $5,000,000.
If you’re not familiar with the term, “by-pass,” trust, you may have heard other terms for the same trust: credit shelter trust, B trust, or family trust.
Some people think that the by-pass trust is no longer necessary because of the very large exemption amount combined with portability.
Others think that use of the by-pass trust remains prudent because:
- There is no portability for the federal estate tax exemption beyond December 31, 2012 so to use both spouses’ exemptions, use of the by-pass trust is necessary.
- There is no generation skipping tax exemption portability and if all assets go to the surviving spouse at the first death, this exemption will be lost.
- Portability is messy, uncharted territory likely to cause family fights and litigation.
- The federal estate tax exemption is $5,400,000 as of 2016.
- Use of the by-pass trust grants creditor protection of trust assets so assets are protected from predators, divorcing spouses, bankruptcy, malpractice suits, car accident or slip and fall lawsuits.
- Use of the by-pass trust protects assets for children (to avoid unintentional disinheritance when the surviving spouse gets remarried.)
- The by-pass trust’s appreciated assets avoid federal estate tax (no matter how much they increase in value.)
If you have additional questions on this topic and would like to speak with an experienced and qualified estate planning attorney in San Diego, please call my office today at 858-792-5988.