CFP

Deferral And Minimization Of Estate Taxes - Marital Deduction and Bypass Trust Planning

Marital Deduction and Bypass Trust Planning
Implementing certain favorable estate planning tools geared towards the spouse, such as the marital deduction and bypass trust, are effective ways to avoid the estate and gift tax liability. Here's how they work.


Marital Deduction:

  • Property is still included in the decedent's gross estate.
  • Property must be passed directly to the spouse.
  • If the decedent leaves everything to the surviving spouse, the estate gets 100% of the marital deduction.
  • Property is taxed in estate of the surviving spouse at their death.
  • QTIP Trust (surviving spouse gets income for life).
Bypass Trust:

  • Take advantage of the applicable credit amount ($2,045,800 for 2013).
  • No marital deduction, taxed in the first spouse to die estate.
  • Executor then takes the full unified credit deduction on the estate tax return.
  • Amount of credit is placed in trust removing the asset from the transfer to the spouse. The surviving spouse can invade the trust for health, education, maintenance and support.
  • Highly appreciated assets are often used to fund the trust.
  • Often known as "Credit Shelter Trust" or "B-Trust."
  • Trust prevents the surviving spouse from inheriting all of the assets under the marital deduction which could create a huge estate tax problem at the second death.


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