Bypass Trust

Married couples are entitled to leave unlimited amounts of assets to the surviving spouse without incurring federal estate taxes. However, when the other partner dies, federal estate taxes are due on the surviving spouse's entire estate. The Bypass Trust enables each spouse to take advantage of the unified credit equal to $675,000 each ($1.35 million per couple) in 2000 and 2001, so that when the first spouse dies, an amount equal to the estate exemption of $675,000 is placed in a Bypass Trust. The assets in the trust are not taxed at this time, but are passed on to heirs estate tax-free. The surviving spouse does have access to the income from the trust for life and can use the principal, if necessary, for his or her health, education, support or maintenance, as well as the needs of the children.

Note: This information should not be used as a basis for legal and/or tax advice. In any specific case, the parties involved should seek the guidance and advice of their own legal and tax counsel.