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A bypass trust has long been a tool of choice for Florida couples who wish to defend their combined marital estate from encroachment by taxation. Recent legislative alterations regarding the marital deduction have made the bypass trust capable of sheltering even more than before.

Bypass trusts may be helpful to younger couples, married couples with large estates and those who have asset protection issues. These trusts typically work by taking the estate of both married partners, combining it and dividing it evenly. Two wills are then prepared, each identical to the other, and each will splits their portion of the estate into two shares.

The first share of the estate is set to meet the marital exclusion which was $5.34 million for people who died in 2014. This amount is bequeathed to the surviving spouse in the form of a life estate. The second share is given directly to the spouse and other beneficiaries, and it will qualify for the marital deduction with the deceased spouse’s estate. After recent changes to estate taxation law, the surviving partner may now use an unused exemption from their spouse as well. This means that assets worth as much as $10.68 million may be sheltered from taxation.

It can be advantageous for anyone engaged in estate planning to ask an attorney for advice. An attorney may also be able to review the proposed plan and make suggestions to strengthen the will or any applicable trusts. Since the recent changes in estate taxation, it is common for income tax issues to be more problematic than estate tax issues. This means that an active approach to the estate upon the death of the property owner may be key. An attorney may be able to move quickly to address relevant issues.

Source: Agri-View, “Should a bypass trust be used as estate planning tool?“, Roger A. McEowen, September 05, 2014