What Is a Bypass Trust?

Video Transcript

"A bypass trust sounds like heart surgery, and by that I mean, you go to a doctor, you've got a block in your artery, the doctor removes the block, the blood flows to your heart, life is good again. That's a little bit different than a bypass trust. A bypass trust is something that a married couple sets up to allow them to get both of their estate tax exemptions. The problem with the state taxes and married couples, is that married couples only get one estate tax exemption per couple, not one per person, unless they do a bypass trust. With a bypass trust you can get two exemptions for a married couple, not just one. You can put a bypass trust in a will, you can put a bypass trust in a revocable living trust. What a bypass does is it says rather than me leaving my property directly to my spouse, which is what a simple will does, or a simple living trust would do. I leave my property to my spouse in a trust, my spouse can be the trustee of the trust, which means they don't give up any control. But, the money that I leave them, up to the amount of my estate tax exemption, is in a safe from estate taxes. They can dip into that money for their needs, they can dip into that money if I want them to, for my kids needs. But, when my spouse passes away, whatever is left in that bypass trust, and maybe even whatever has grown in that bypass trust, so my spouse didn't touch the money that's in the bypass trust, and it's grown, by three or four million dollars, all of that money will go to my loved ones, go to my kids when my spouse dies, state tax free. So, bypass trusts are pretty powerful, we can also use a bypass trust to do a couple of other things, like remarriage protecting estate, and law suit proof a portion of the estate."