Key Points:
A bypass trust is a legal tool used in estate planning to help married couples reduce estate taxes. When one spouse dies, part of their estate is placed into the trust to “bypass” taxation in the surviving spouse’s estate. This setup preserves the federal estate tax exemption of the first spouse to die, which can be vital as exemption thresholds change.
Estate planning is about preparing for the unexpected and protecting your family’s future. If you’re a married couple in Boca Raton with significant assets, you may be wondering: How can we reduce estate taxes and pass more to our children?
A bypass trust could be the answer.
What Is A Bypass Trust?
A bypass trust is a type of irrevocable trust that’s created when the first spouse in a marriage dies. Instead of leaving the entire estate to the surviving spouse, the deceased spouse’s share goes into the bypass trust.
The key purpose of a bypass trust is to preserve the federal estate tax exemption of the first spouse to die. By placing assets in the trust, those assets bypass inclusion in the surviving spouse’s estate, which helps reduce or eliminate future estate tax liability.
Bypass trusts are especially attractive in high-asset households where both spouses’ exemptions need to be preserved. With rising property values in areas like Boca Raton, this strategy helps families pass on more to their heirs while avoiding unnecessary tax burdens.
So, how does this actually work in real life? Let’s walk through the step-by-step process.
How A Bypass Trust Works In Boca Raton
Bypass trusts are often used alongside A trusts, also known as marital trusts, to form what’s called an AB Trust structure. This coordinated approach allows married couples to maximize tax savings while ensuring financial support for the surviving spouse.
One spouse dies. Their portion of the marital estate—up to the federal estate tax exemption—is transferred into a B Trust (Bypass Trust). These assets typically bypass the surviving spouse’s estate and are earmarked for the couple’s children or other beneficiaries.
However, the surviving spouse may receive income from the B Trust for the rest of their life. This is as long as they do not over-benefit or exercise control that would pull the assets back into their estate.
The remaining assets, such as the surviving spouse’s property and any excess above the exemption amount, are placed into an A Trust (Survivor’s Trust). The surviving spouse retains full access and control over this trust during their lifetime.
By separating the estate in this way, the couple’s total wealth is strategically split to reduce or even eliminate estate taxes when the second spouse passes. This leaves more for their children or named beneficiaries, preserving the legacy they’ve worked hard to build.
What Can The Surviving Spouse Access?
A common concern when considering a bypass trust is whether the surviving spouse will still have access to the assets. Fortunately, while the trust is irrevocable, it’s designed to provide for the surviving spouse’s needs, just within certain limits that keep the tax benefits intact.
- Receive income from the trust. The surviving spouse is typically entitled to receive income generated by the trust assets, such as interest, dividends, or rental proceeds. This ensures continued financial support without increasing the taxable estate.
- Use the principal for health, education, maintenance, and support. Known as the “HEMS” standard, this provision allows distributions of principal to the surviving spouse for core life expenses. It offers a degree of flexibility while preserving the trust’s tax-advantaged structure.
- Live in trust-owned property. If the trust holds a residence, such as the couple’s home in Boca Raton, the surviving spouse can usually continue living there. The trust can also pay for upkeep, property taxes, and insurance as needed.
- Benefit from investments or business interests held in trust. The trust may contain stocks, bonds, or business ownership interests. The surviving spouse can benefit from dividends, partnership income, or management income, depending on the trust’s terms.
However, they can’t change where the assets go after their death. That’s locked in by the original trust terms.
Even though access is limited compared to outright ownership, most bypass trusts are carefully structured to ensure the surviving spouse is well-supported. Next, we’ll walk through how this trust structure is set up and functions from beginning to end.
Who Should Consider A Bypass Trust?
Not every estate plan needs a bypass trust, but for the right family, it can be one of the most powerful tools in the legal toolbox. If you’re concerned about estate taxes, asset protection, or ensuring your children inherit as intended, it’s worth exploring whether a bypass trust fits into your strategy.
You may want to include a bypass trust in your estate plan if:
- You expect your estate to exceed the federal estate tax exemption. With the current exemption scheduled to drop in 2026, families with even moderate wealth, especially those owning appreciated property or investments, may soon face tax exposure.
- You have children from a prior marriage and want to ensure they receive a portion of your estate. A bypass trust locks in who ultimately receives the trust assets, preventing future spouses or outside parties from unintentionally altering your legacy.
- You want to control how assets are distributed after both spouses pass away. The trust terms dictate when, how, and to whom distributions are made, adding a level of predictability that simple wills can’t match.
- You’re concerned about potential reductions in the estate tax exemption in future years. The 2025 sunset of the current high exemption means that families who plan ahead today may avoid significant tax liabilities tomorrow.
This trust structure can also protect growth on trust assets from taxation in the survivor’s estate, an often-overlooked benefit that amplifies its long-term value.
If you’re wondering what sets bypass trusts apart from other estate tax strategies, such as the portability option, let’s explore how they compare head-to-head.
Benefits Of A Bypass Trust
Before deciding if this tool fits your family’s needs, let’s consider its major advantages:
- Estate Tax Savings: Ensures both spouses’ exemptions are used.
- Asset Protection: Protects the children’s inheritance from the surviving spouse’s creditors or remarriage.
- Certainty & Control: Locks in where assets will go, even decades later.
- Growth Shielded from Tax: Trust assets grow outside the surviving spouse’s estate.
In Boca Raton, where real estate and investment values are high, these savings can be substantial.
Downsides & Tradeoffs
Bypass trusts are powerful—but not perfect. Here’s what to keep in mind:
- No Step-Up in Basis at Second Death: The assets in the bypass trust don’t get a second “step-up” in tax basis when the surviving spouse dies, which may mean more capital gains tax for heirs.
- Irrevocable: Once funded, the trust cannot be altered by the surviving spouse.
- Complex Administration: Annual trust tax returns may be required.
- Limits on Access: The surviving spouse can’t tap into trust assets as freely as with a revocable trust.
These tradeoffs make it essential to evaluate whether a bypass trust aligns with your family’s financial goals and estate plan. That’s where working with a knowledgeable estate planning firm comes in—ensuring that your trust is tailored to your specific circumstances and set up correctly from day one.
Boca Raton Probate Attorneys Can Assist You
At Boca Raton Probate Attorneys, we understand how overwhelming estate planning can feel, especially when tax laws are complex and constantly changing. That’s why we take the time to walk you through every step of setting up a bypass trust.
Whether you’re trying to preserve both spouses’ estate tax exemptions or protect family wealth from future risks, we’ll help craft a plan that fits your goals. Our team ensures your trust documents are properly drafted, funded, and administered in full compliance with state and federal law.
We also advise on how to balance control and flexibility, so your surviving spouse is cared for without jeopardizing tax advantages. From high-value estates to blended families with competing priorities, we tailor every strategy to your unique situation.
Let us help you make confident, informed decisions today that protect your legacy tomorrow. Peace of mind starts with proper planning, and we’re ready when you are.
If you’re wondering whether a bypass trust is right for your family, we’re here to guide you. At Boca Raton Probate Attorneys, we help Florida families create estate plans that stand the test of time. Let’s build a strategy that protects your legacy and gives your loved ones peace of mind. Schedule a consultation today.
