Define: Bypass Trust

A bypass trust, also known as a credit shelter trust or a family trust, is a legal arrangement that allows a person to pass assets to their beneficiaries while minimizing estate taxes.

When a person creates a bypass trust, they transfer assets into the trust, which are then managed by a trustee. The trust’s terms dictate how the assets are distributed to beneficiaries, typically after the grantor’s death.

One of the main benefits of a bypass trust is the reduction of estate taxes. By placing assets in the trust, they are not considered part of the grantor’s taxable estate, potentially saving a significant amount in taxes.

Anyone who has significant assets and wants to minimize estate taxes can create a bypass trust. It is commonly used by married couples to ensure the efficient transfer of assets to their heirs.

In most cases, a bypass trust cannot be changed or revoked once it is established. However, some trusts may include provisions that allow for modifications under certain circumstances.

One potential downside is the loss of control over the assets placed in the trust. Once transferred, the grantor no longer has direct control over those assets, as they are managed by the trustee.

In some cases, a properly structured bypass trust can provide some protection against creditors. However, it is important to consult with an attorney to ensure the trust is set up correctly to provide the desired level of asset protection.

Generally, a bypass trust can hold various types of assets, including cash, investments, real estate, and business interests. However, certain assets may have specific rules or restrictions that need to be considered.

Yes, a bypass trust can be structured to provide for minor children. The trust can specify how the assets are to be used for the children’s benefit until they reach a certain age or milestone.

While it is possible to create a bypass trust without an attorney, it is highly recommended to seek legal advice. An attorney specializing in estate planning can ensure the trust is properly drafted and meets all legal requirements.