by Randall Steven Heiler on Feb. 20, 2018

Estate Trusts Estate  Wills & Probate Estate  Estate Planning 

Summary: TAX LAW CHANGES 2018



Beware: Your Estate Plan May Contain a Burdensome Bypass Trust


President Trump’s new tax laws contain important estate planning changes.  Our new estate tax exemption is now nearly $11.2 million, and PORTABILITY of the estate tax exemption is still allowed between spouses.

PORTABILITY: Portability of the estate tax exemption between spouses means that if the full estate tax exemption of the first spouse to pass away is not used, the unused exemption will be added to the surviving spouse’s exemption, in turn giving the entire estate more than $22 million in exemptions.

Now that the estate tax exemption exceeds $11 million and PORTABILITY is still allowed, bypass trusts are not particularly useful for the average couple.  Upon the death of a spouse, a bypass trust, which is irrevocable, is funded with a division of the couple’s assets up to the amount of the estate tax exemption before any distributions can be made to the surviving spouse.

With the current estate tax exemption, it’s likely for most people that all of their estate will be transferred to the bypass trust.  Most bypass trusts require that the maximum amount be transferred into trust when the first spouse dies. Even though the tax motive for the bypass trust is gone, the trust still exists. It is unnecessary, burdensome and expensive. Your spouse and you should modify your trust to eliminate the bypass trust, because it won't go away on its own. If you leave it in place, instead of saving money it will add time, expense and burden to the administration of your estates.

Trusts should be reviewed by an estate planning attorney because there’s a likely chance they contain a bypass clause that is outdated and no longer sensible.  As bypass trusts have restrictions on access, this could be inconvenient for the surviving spouse, who will find that there is the additional burden of filing separate Federal and State income tax returns on the trust each year. Bypass trusts are also disadvantageous from an income tax standpoint for children who are the ultimate beneficiaries after the surviving spouse.                                         

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