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Including a bypass trust in estate plan

If a New York couple has a taxable estate that may exceed the amount of the exemption, one tool that they may use is a bypass trust. This estate planning tool helps to eliminate estate taxes for the first spouse who dies while also reducing the amount of estate taxes of the surviving spouse's estate.

A bypass trust requires the spouses to assess the value of their assets before either one passes. Then, the spouses create separate wills that mirror the will of the other spouse. Each will splits the marital property into two shares. One of these shares is equivalent to the exclusion amount. This share is a life estate that is provided to the surviving spouse with a remainder to other beneficiaries. The other share is provided to the surviving spouse to qualify for the marital deduction. Bypass trusts are preferred when young children are beneficiaries or when a young couple contemplates that one spouse may remarry upon the death of the other.

However, bypass trusts are not the only option to accomplish the goal of reducing estate taxes. Using portability and a will may be preferable in some situations. For example, a trust may not be called for if the children are adults. Furthermore, if the marital estate is more than $5.34 million but less than $10.68 million, portability may be preferred. However, portability delays the closing of the estate, which some couples may wish to avoid.

Individuals who would like to minimize the amount of estate taxes that they may be required to pay might discuss various options with an estate planning lawyer. Such an attorney may be able to offer suggestions on tax savings that are based on the particular circumstances of the couple.

Source: Agri-View, "Should a bypass trust be used as estate planning tool?", September 05, 2014

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