| Alan R. Horvath, Attorney at Law |
| Frequently Asked Trust Questions |
| Phone: 209 754-5291 Fax: 209 754-5293 |
| ahorvathlaw@sbcglobal.net |
P.O. Box 81
596 Mountain Ranch Rd.
San Andreas, CA 95249
596 Mountain Ranch Rd.
San Andreas, CA 95249
What is a Bypass trust?
A Bypass Trust is an estate tax avoidance tactic. It is based on the Internal Revenue Codes determination of what
constitutes ones estate at death.
Your estate will be taxed at death for everything over the then prevailing estate tax exclusion. For a married
couple, it is possible, with appropriate planning, to collectively take advantage of two estate tax exclusions, one at
each death. However, in order to accomplish this it is essential that everything not be left outright to the surviving
spouse at the first death. In California, by default, community property is divided in two at the first death, and one
half taxed to the decedent's estate. However, an outright gift to a surviving spouse is exempt from taxation at that
time, but becomes taxable at the second death instead.
A Bypass trust consists of having the decedent's share, or some portion of it, be held in trust at the first death
rather than being left outright to the survivor. It can be used for the benefit of the survivor, but the key is that the
IRS must not consider it to be under the control of the survivor. Since the Trust is the owner of these assets they
are not the property of the survivor, and hence not taxed at the second death.
A Bypass Trust is an estate tax avoidance tactic. It is based on the Internal Revenue Codes determination of what
constitutes ones estate at death.
Your estate will be taxed at death for everything over the then prevailing estate tax exclusion. For a married
couple, it is possible, with appropriate planning, to collectively take advantage of two estate tax exclusions, one at
each death. However, in order to accomplish this it is essential that everything not be left outright to the surviving
spouse at the first death. In California, by default, community property is divided in two at the first death, and one
half taxed to the decedent's estate. However, an outright gift to a surviving spouse is exempt from taxation at that
time, but becomes taxable at the second death instead.
A Bypass trust consists of having the decedent's share, or some portion of it, be held in trust at the first death
rather than being left outright to the survivor. It can be used for the benefit of the survivor, but the key is that the
IRS must not consider it to be under the control of the survivor. Since the Trust is the owner of these assets they
are not the property of the survivor, and hence not taxed at the second death.
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