Creating an estate plan in Maryland is critical to building and protecting wealth. This is especially true for married individuals looking to leave assets to their spouse without worrying about the probate process. A bypass trust is an essential tool that can benefit estate planning, depending on a person’s financial goals.
Defining a bypass trust
Married couples can avoid paying estate tax on assets when one spouse dies by using a bypass trust in their estate planning. This trust divides the estate into two trusts: An A trust or marital trust, and a B trust, also known as the bypass or family trust.
The person who creates the marital trust can change its terms since it is revocable. However, the family trust is irrevocable, meaning one cannot change its terms.
When one spouse dies, their portion of the estate is transferred to the family trust, and the surviving spouse no longer owns the assets in the trust. However, they can receive income from it during their lifetime. The portion of the estate that goes into the marital trust is fully accessible and controllable by the surviving spouse. They can spend the trust or sell the assets at their discretion.
The role of a bypass trust in estate planning
A bypass trust may minimize high-wealth married couples’ federal and state estate taxes. With the B portion of the trust, assets are not subject to federal estate tax up to a certain limit. If the assets in the family trust do not exceed that amount, they will not face federal tax. The assets in a marital trust that the surviving spouse controls are also not subject to state or federal tax.
Although establishing a bypass trust can be costly and time-consuming, it can be a powerful estate planning tool. Individuals who wish to help future generations build wealth should consider their trust options.