Married couples receive special benefits in estate and tax planning solely due to their married status. Many of these benefits make it easier for couples to pass assets along to one another and avoid complications when one of them die. Estate planning attorneys can advise clients on strategies they should utilize to take advantage of these benefits. One of these is a bypass trust, which married couples can use to avoid estate taxes on certain assets when one passes away. Below is information on bypass trusts and how they can be implemented into a Colorado estate plan.
What is a Bypass Trust?
A bypass trust is a legal arrangement that permits married couples to split their joint assets in order to avoid estate taxes when one spouse passes away. When the first spouse dies, the estate’s assets are split into two trusts. The first trust, called a marital trust, is owned by the surviving spouse. This is a revocable trust that can be altered at any time, and the surviving spouse owns the assets in this trust.
The second trust, the bypass trust, is an irrevocable trust—meaning it cannot be changed later. When the first spouse passes away, a majority of their assets go into the bypass trust. The surviving spouse can access the assets in the bypass trust and receive income from it. However, they technically do not own the assets in the bypass trust.
What Are the Benefits of a Bypass Trust?
One of the major benefits of a bypass trust is that often the surviving spouse does not need to pay the estate tax on the trust. Because of this, many couples will plan to have their IRA or 401(K) proceed placed in a bypass trust. However, it is important to note that after the passage of the SECURE Act, if IRA or 401(K) proceeds are within a bypass trust, the proceeds must be paid out within 10 years. This is a new change, so estate planning attorneys can advise clients on how this will affect their current trusts.
Another benefit to creating a bypass trust is that the assets in this trust are not subject to probate. This means the surviving spouse will not have to stress about going through the court process before being awarded the assets.
Because bypass trusts can be confusing at first glance to many married couples, those interested in creating a bypass trust should reach out to an estate planning attorney as soon as possible to assist with the process.
Contact a Colorado Estate Planning Attorney
If you or a loved one needs assistance creating a bypass trust, contact the Boulder estate planning attorneys at the Braverman Law Group. Our attorneys have years of experience drafting estate plans and other documents including trusts and retirement accounts. Because every person is unique, every estate plan is unique—so our attorneys will work with you to create the plan that works for you and your family. For a free, no-obligation consultation with one of our estate planning attorneys, give us a call today at (303) 800-1588.