When it comes to estate planning for married couples, certain strategies can offer both tax advantages and long-term protection for loved ones. One powerful tool is the Marital Bypass Trust, also known as a Credit Shelter Trust or A/B Trust. If you’re married and building an estate plan, here’s what you should know:
What Is a Marital Bypass Trust?
A Marital Bypass Trust is an estate planning strategy used by married couples to minimize estate taxes and protect assets. When the first spouse passes away, a portion of their estate is placed into a trust (the “bypass” or “credit shelter” trust), rather than going directly to the surviving spouse. This bypasses the surviving spouse’s estate, which can help reduce or eliminate estate taxes when the second spouse passes away.
How Does It Work?
Here’s a simplified breakdown:
- When the first spouse dies, their estate is divided: (a) Part of the estate goes into the Bypass Trust (up to the federal estate tax exemption limit), and (b) The rest passes directly to the surviving spouse (often in a Survivor’s Trust).
2. The surviving spouse can benefit from the trust during their lifetime (e.g., receive income or use assets), but they don’t legally own what’s in the Bypass Trust.
3. When the second spouse dies, the assets in the Bypass Trust pass directly to the beneficiaries—typically children—without being subject to additional estate taxes.
What Are the Benefits?
- Estate Tax Savings – This strategy takes advantage of both spouses’ federal estate tax exemptions, potentially saving hundreds of thousands in estate taxes for larger estates.
- Asset Protection – The trust can protect assets from creditors, lawsuits, or future remarriages.
- Control – You can ensure assets eventually go to your children or other heirs, even if the surviving spouse remarries or rewrites their own estate plan.
- Predictability – The structure helps keep your long-term wishes intact and reduces the chance of disputes or misunderstandings.
Is a Marital Bypass Trust Right for You?
These trusts are typically most beneficial for:
- Couples with larger estates
- Blended families
- Those wanting more control over how assets are distributed after both spouses pass away
At Fountain Hills Law Firm, we help Arizona families evaluate the right estate planning strategies based on their values, assets, and long-term goals. Schedule a consultation to learn whether a marital bypass trust fits your plan.
