What Is a Bypass Trust? And Why It Can Save Your Heirs Millions
When planning your estate, one of the smartest moves you can make is using a bypass trust. It’s a powerful tool that helps preserve wealth for your loved ones by minimizing estate taxes.
The Estate Tax Problem
The federal government imposes an estate tax on large estates, up to 40% on amounts exceeding the exemption limit (currently $13.61 million per person in 2025). Without proper planning, families can lose millions to taxes.
The Bypass Trust Solution
A bypass trust (also called a credit shelter trust or family trust) allows a married couple to use both spouses’ estate tax exemptions—instead of wasting one when the first spouse dies.
Here’s how it works:
When Spouse A dies, up to $13.61 million of their assets go into a bypass trust.
The surviving spouse can use the income and access assets for health, education, maintenance, and support.
But those assets aren’t counted in the surviving spouse’s estate when they pass away.
Result: No estate tax on the trust assets when the second spouse dies.
Why It Matters to Your Family
✅ Preserves Wealth: More of your estate goes to your children or heirs, not the IRS.
✅ Avoids Double Taxation: Assets in the trust are taxed once, not twice.
✅ Protects Legacy: You control how assets are used and distributed.
✅ Provides Flexibility: Surviving spouse still benefits from the trust during their lifetime.
Real-World Example
A couple has $26 million. Without planning, $13 million could be taxed when the second spouse dies, costing heirs $5.2 million.
With a bypass trust, that $13 million is sheltered, and the family keeps it.
Estate planning isn’t just about documents; it’s about protecting your legacy. If you’re unsure whether a bypass trust fits your situation, let’s talk. It could be one of the most impactful financial decisions you make for your family.
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