Provide for Kids

• The bypass trust is a type of estate planning tool that is commonly used by married couples to ensure that their children are provided for. With this type of trust, the first spouse to die has his assets placed into the possession of the trust. Then the other spouse gets to use those assets while she is still alive. Upon the death of the second spouse, all of the assets from both parents are then passed on to their children.
  
  

Minimize Estate Taxes

• Another reason that many married couples use bypass trusts is so that they can minimize the estate tax hit when they die. Since the property from the first spouse is placed into the trust, this money is not simply added to the value of the estate of the surviving spouse. Because of this, it does not increase the estate size and lead to more estate taxes being charged. In many cases, it helps the total value of the estate get below the estate tax exemption.
  
  

Surviving Spouse Rights

• Some people use bypass trusts because they still provide the surviving spouse with some rights. For example, if the bypass trust creates income, the surviving spouse can continue to receive this income while she is alive. She also may be able to take assets out of the trust as they are needed. This does not negatively affect the status of the bypass trust or create any extra tax liability. This way, the surviving spouse can still be provided for.
  
  

Considerations

• While you have many types of trusts to choose from when estate planning, the bypass trust may be the best option to consider. For example, some people use an irrevocable trust to ensure that estate taxes do not play a role when they die. However, when using an irrevocable trust, you no longer have access to the assets in the trust. With a bypass trust, you get to minimize estate taxes while still retaining some rights to the assets in the trust.