Bypass trust

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Bypass trust

An irrevocable trust that is designed to pay trust income (and principal, if needed) to an individual's spouse for the duration of the spouse's lifetime. The bypass trust is not part of the beneficiary spouse's estate and is not subject to federal estate taxes upon his/her death.

Bypass Trust

An irrevocable trust into which the trustor deposits funds and other assets to provide for a surviving spouse. 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. A bypass trust is common when a person wishes to avoid estate taxes on assets passing to the spouse. See also: Q-TIP.