Page 117 - JoFA_2022

TAX / PERSONAL FINANCIAL PLANNING

Assets in a disclaimer trust are this, many advisers have found that a regular

typically held separate and apart bypass trust can be a married couple’s best choice.
However, others have found that planning for
from the surviving spouse’s estate. portability may be a better, and easier, alternative
for preserving both lifetime exemptions.

First, a closer look at a regular bypass trust
The popular bypass trust (also known as the credit
Searching for a better option rather than passing shelter trust) is funded after the first spouse’s death.
all assets ‘directly’ to your spouse Funding is generally required by a preset formula,
Despite all the unknowns about higher estate taxes, or dollar amount. Rather than passing estate assets
married taxpayers still have options that could directly to the surviving spouse, the objective of
minimize their overall tax burden. Because they the bypass trust is to provide for the spouse’s needs
have two full lifetime exemptions, it is often a good for life. The trust will continue to hold the assets
idea to have a trust drafted under an attorney’s (separate and apart from the estate of the surviv-
guidance that would serve to preserve the full ing spouse), and the assets will later be distributed
value of both lifetime exemptions. To accomplish to the named beneficiaries after the death of the
second spouse.

AICPA RESOURCES What are the advantages of a traditional bypass
trust?
Articles A traditional bypass trust has often been con-
“The Grantor Trust Rules: An Exploited Mismatch,” The Tax Adviser, Nov. 2021 sidered the best tax-saving strategy for married
couples, and this was especially true in the era
“Recent Developments in Estate Planning: Part 2,” The Tax Adviser, Nov. 2021
when lifetime exemptions were low. Its main
“Recent Developments in Estate Planning: Part 1,” The Tax Adviser, Oct. 2021 advantage is that it provides a simple way to ensure
PFP Member Section and PFS credential the maximum use of the full exemption of both
spouses. However, bypass trusts offer at least three
Membership in the Personal Financial Planning (PFP) Section provides
access to specialized resources in the area of personal financial planning, additional benefits that should not be overlooked:
including complimentary access to Broadridge Advisor. Visit the PFP ■ Assets in the bypass trust can appreciate further
Center. Members with a specialization in personal financial planning in value and not be included in the surviving
may be interested in applying for the Personal Financial Specialist (PFS) spouse’s estate. In times of rising prices and
credential. inflation, this feature can be invaluable when
estate assets have significant growth potential

IN BRIEF is to transfer assets to a bypass trust. ■ A marital disclaimer trust, which
The trust holds the assets for the provides results similar to a bypass
■ Proposed tax changes as of this benefit of the surviving spouse during trust, gives greater flexibility to a
writing are creating uncertainty in his or her life, and then at death surviving spouse because it allows
estate planning, and married couples they are distributed to the trust’s the spouse to wait until the death of
anticipating being subject to the beneficiaries. the decedent spouse to determine
federal estate tax should carefully ■ Compared to creating a bypass trust, if disclaiming asset ownership and
consider the options other than a simpler and more efficient way to implementing the trust would be
transferring the assets of the first maximize the use of both spouses’ beneficial.
spouse to die directly to the surviving lifetime exemptions may be to elect ■ Each of these estate planning
spouse. portability. This election allows the strategies for married couples has
■ One option, which allows the couple surviving spouse to use the deceased certain advantages and disadvantages
to maximize the use of their valued spouse’s unused lifetime exemption that are discussed in this article.
lifetime estate and gift tax exemptions, amount.

To comment on this article or to suggest an idea for another article, contact Dave Strausfeld at David.Strausfeld@aicpa-cima.com.

24 | Journal of Accountancy March 2022