Many Older Estate Plans Have an Unnecessary Trust

by | Dec 28, 2016 | With Your Family in Mind

 An estate plan technique that was very popular some years ago, is still present in many people’s trusts, especially if they have not reviewed their estate plan in a while.  This technique – called a “bypass trust” may no longer be necessary because of changes to our federal estate tax.
Not long ago, the federal estate tax affected even relatively small estates, and it was a big problem.  One solution was to provide, when the first spouse died, the one-half of the deceased spouse’s community property and all of the separate property would be funded into a trust that would “bypass” the estate tax.  Now, the federal estate tax only affects estates worth well over $5 million.  Now, in the vast majority of cases, these bypass trusts are no longer necessary and in fact, they might be a bad idea.
For example, if the deceased spouse’s assets are tied up in the bypass trust, the surviving spouse may not have control over those assets, and the spouse would have to use all of their share of the assets in the survivor’s trust before they could touch the principal in the bypass trust.  That trust would require accountings and tax forms, which can be expensive and burdensome.  Another problem is that a bypass trust can cause a family to pay higher capital gains taxes.
Bypass trusts are not always bad.  They sometimes serve other purposes that are not tax-related.  If you have a bypass trust in an older document, it is worth having it reviewed and having your estate plan brought up-to-date.
Ms. MacDonald’s practice is limited to Estate Planning, Probate and Trust Administration.  Ms. MacDonald maintains her practice in the Santa Clarita Valley at 25115 Avenue Stanford, Suite A-209, Valencia, California.  She can be reached at 661-294-6464.

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