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.
- 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).
- 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.
Inter-Vivos and Testamentary Charitable Gifts
RetirementAs rules and exemptions tied to the estate tax change, so should your estate plan. Here's why updating it is so important.
RetirementThis is how disclaimer trusts work and when it makes sense to use them in an estate plan.
Managing WealthDon't let unexpected taxes eat away at your inheritance or burden your heirs.
Managing WealthTrusts are an estate plan's anchor, but the terminology can be confusing. We cut through the clutter.
Financial AdvisorInheritance is a double-edged sword, as leaving money can create estate tax burdens. Opting for a life insurance plan can help mitigate those burdens.
RetirementTrusts, wills, taxes and rules differ by country. Find out what you need to know about estate plans in Canada.
Managing WealthEverything you always wanted to know about setting up trusts, in handy glossary form.
RetirementThis article explains the difference between the two estate transfer methods -- a will and a trust, and the circumstances under which each can be used.
Financial AdvisorDeath is not something that we wish to dwell on, but estate planning—and figuring out even more basic issues—is something we definitely should not avoid.