v. On the death of my spouse, the Trustee shall transfer and pay over the Trust Estate in accordance with the provision below entitled "Distribution for Issue". A bypass trust is an irrevocable discretionary family trust. All income of the trust can be distributed to Sally or just as much as she needs for her health, education, maintenance, and support. Another common choice married couples can consider is the bypass trust, also known as an AB trust. In Washington, where the estate exemption is $2 million, even more can be saved. If my spouse survives me: i. I give, devise and bequeath the pecuniary sum which is the largest dollar amount which will not create a federal or state estate tax on my death, to the Trustee of my State Exclusion Trust, in trust, (âState Exclusion Trustâ) to be disposed of in accordance with the provision below "Application of State Exclusion Trust". For those readers who are married and have an estate of $2 million or more, a bypass trust can save the ones you love at least $100,000 in estate taxes. Example 4: Harry has a taxable estate of $5.25 million, as does Sally. Property passing outside this Will which is included in my gross estate and does not qualify for the marital deduction or charitable deduction (or for which no marital deduction or charitable deduction is claimed). Trust principal can be distributed to Sally for her health, education, maintenance, and support. b. Bequest of Basic Exclusion Amount. The credit shelter trust or bypass trust is designed to do just that. The spousal bypass trust, some might argue, is no longer relevant in terms of tax efficiency, particularly where the member dies on or after their 75 th birthday. The aim is to minimise the charge to Inheritance Tax. The bypass trust in such cases still guarantees that the children will inherit the principal from the bypass trust after the death of the surviving spouse. My Executor shall, in my Executor's discretion, determine whether or not to elect to qualify all, any part, or none of the Exclusion/QTIP Trust for the marital deduction provided in Code Section 2056. Some of the disadvantages of a Bypass Trust include (take a deep breath!) The bypass trusts provide that the surviving spouse cannot change the ultimate beneficiaries of the trust. She would die with a taxable estate of $10.5 million, and $5.25 million would be subject to an estate tax at the 40 percent rate, for a total federal estate tax of $2.1 million. i. The result in this simple example is zero tax due, resulting in federal estate tax savings of $246,250. bypass trust. A bypass trust, or AB trust, is a legal arrangement that allows married couples to avoid estate tax on certain assets when one spouse passes away. A bypass trust is irrevocable, meaning that once John puts the farm into a trust for James, he can't undo it. Example 2: If Harry and Sally, who are married, each have $1 million in assets and Harry dies and gives his $1 million to Sally in a bypass trust, when Sally later dies, the $1 million in the bypass trust is not included in her estate. IT IS NOT A COMPLETE DOCUMENT, NOR CURRENT REPRESENTATION OF THE LATEST LAW OR DRAFTING TECHNIQUES IN THIS AREA. Option 4: Clayton Election Harry dies and passes his estate to Sally outright. Such amount shall be referred to as the "Basic Exclusion Amount". If my spouse survives me, I give, devise and bequeath my residuary estate to the Trustees, in trust for the benefit of my spouse (âResiduary QTIP Trustâ), to be disposed of in accordance with the provision below entitled "QTIP Trust for Surviving Spouseâ. In a bypass trust, the trustor names his/her surviving spouse as beneficiary and provides that the income and/or principal from the trust shall pass to that spouse upon the trustor's death. (1) My Trustee shall pay or apply all of the net income thereof to or for the benefit of my spouse in annual or more frequent installments. Another example includes taxable estates. Option 4: … A bypass trust holds the deceased spouse’s basic exclusion. (It may still be subject to state estate tax, depending on where you live.) a. IT WAS DRAFTED SHORTLY AFTER THE 2010 TAX ACT WAS PASSED MERELY TO SERVE AS A POINT OF DISCUSSION FOR THE IMPACT OF THE LAW. She will have a $1 million exemption, and thus $1 million in assets will be subject to Oregon’s estate tax at the rate of 10 percent. I recognize that if I become domiciled in a different state prior to my death and without changing this will, that the impact of this distribution scheme may be changed and this bequest may be affected. 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