Bypass Trust (Credit Shelter Trust)
A bypass trust (credit shelter trust or B trust) uses the first spouse's estate tax exemption by holding assets outside the surviving spouse's estate while providing income to the survivor, preserving exemption amount from estate taxes.
Exam Tip
Bypass = preserves first spouse exemption. Surviving spouse gets INCOME only. Trust assets bypass survivor's estate. Portability reduced need but not eliminated.
What is a Bypass Trust?
A bypass trust preserves the first spouse's estate tax exemption by keeping assets out of the surviving spouse's estate.
How It Works
When first spouse dies:
- Assets up to exemption amount ($13.61M in 2024) go to bypass trust
- Surviving spouse receives income from trust
- Trust assets NOT included in survivor's estate
- At survivor's death, assets pass to children estate-tax-free
Terminology
| Term | Meaning |
|---|---|
| Credit Shelter Trust | Uses exemption "credit" |
| B Trust | B in A-B trust planning |
| Bypass Trust | Bypasses survivor's estate |
| Family Trust | Benefits family |
Portability Alternative
Since 2011, unused exemption can be "ported" to surviving spouse. BUT bypass trust still useful for:
- Protecting appreciation
- State estate tax planning
- Asset protection
- Non-citizen spouses
Study This Term In
Related Terms
Estate Tax (Federal)
The federal estate tax is a tax on the transfer of property at death, applying to estates exceeding the exemption amount ($13.99M in 2025, $15M in 2026) at rates up to 40%.
Unified Credit (Estate Tax Exemption)
The unified credit is a federal tax credit that exempts a specified amount of assets from estate and gift taxes during a person's lifetime and at death, set at $13.99 million for 2025 and $15 million for 2026 per individual.
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