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Determining if a Bypass Trust is Right for a Couple

As Massachusetts couples get older or acquire more assets, they may begin thinking about how to plan their estate in the event that one or both parties pass away. In some cases, couples may decide to use a bypass trust, though this option is not for everyone.

A bypass trust allows couples to minimize the couple’s estate tax in the event that one person dies. This is done by splitting the combined value of the estates and dividing it into two shares. One share is tied to the applicable exclusion while the other is left as a life estate that would go to the surviving spouse and any beneficiaries. Both spouses would have wills that mirror each other to facilitate this division.

While using a bypass trust can be advantageous for some, there are cases where a simple will may be better. For example, if the couple’s children are the beneficiaries and have already become adults, they may be able to deal with large bequests. Additionally, if the combined wealth of both spouses is less than twice the exemption equivalent or the couple resides in a state that does not have an inheritance tax, portability may be a better option for the couple. However, those who have assets that need to be protected or if a young couple is seeking asset protection in the event of an untimely death, a bypass trust may be a good option.

Putting together wills or trusts can be difficult. An estate planning attorney may be able to help their clients by gathering together all of the applicable documents and asset information needed to provide protection for the clients or their beneficiaries. The attorney may be able to provide advice on whether a bypass trust is an option for a couple’s particular needs or determine if there is another option that works better.

Source: Agri-View, “Should a bypass trust be used as estate planning tool?“, September 11, 2014

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