But, funding highly appreciating assets into a bypass trust
can cause a lost opportunity for receiving a step-up in basis at the second death without the benefit of saving any estate tax.
Because all future growth in that trust is outside of a taxable estate, the trustee often advises the income beneficiary/ surviving spouse to spend down his taxable estate before taking distributions from the bypass trust
. Many advisors would counsel against the trust paying extra trust tax preparation fees, and possibly administration and management fees, if it is merely reinvesting the growth into the surviving spouse's taxable estate.
(8) In its simplest form, portability involves the DS leaving all of his or her assets outright to his or her SS (or to a marital deduction trust for the benefit of the SS), eliminating the need for a bypass trust
(i.e., a trust established for the benefit of a SS that will not be included in the SS's estate for estate tax purposes) (basic portability plan).9 Although the main rationale for enacting portability was to simplify estate planning, portability places a greater significance on the facts and circumstances of each particular client, requiring practitioners to take a much more calculated approach to planning.
may have been abandoned in some estate plans in the wake of the American Taxpayer Relief Act of 2012 (ATRA), with "some clients [...
Considerable IHT savings can be made using a spousal bypass trust
However, accumulated income and future appreciation within a bypass trust
will be excluded from the gross estate upon the death of the second spouse;
A charitable trust, for example, becomes a "capital gains bypass trust
," and an ILIT is described as "a children's trust." Life insurance, annuities, and IRAs are also covered.
This trust is also referred to as a bypass, unified credit, credit shelter, credit amount, or credit equivalent bypass trust
. If most property is held by a husband and wife in joint title with right of survivorship, the "A" trust could be overqualified and there may not be $3,500,000 of other property available to place in the "B" trust.
Credit Shelter Bypass Trust
. A credit shelter bypass trust
generally uses the estate tax unified credit applicable exclusion amount of the first spouse to die, while avoiding the estate of the second to die.
. Qualified plan or IRA benefits should generally be paid to a bypass trust
only if there are no other assets to fund the bypass trust
Advantage: An A-B trust arrangement is another name for a strategy using a credit shelter bypass trust
with a marital deduction trust.
THE ADVICE: Consider setting up a bypass trust
. The Vinsons need to give some thought as to how to distribute their estate.