The disclaimer trust is an empty bypass trust into which a surviving spouse can "disclaim" assets.
If you have significant assets, your estate plan probably already includes a bypass trust.
If the will spells out the dollar amount going to the bypass trust, it will probably be too little.
So they have a bypass trust written into their plan, too, should one spouse survive the other.
The result: Residents of community property states have more flexibility when it comes to filling a bypass trust.
If this rings true, you should revise your will to stipulate a specific figure to fund the bypass trust.
The bypass trust would pay income, and if needed, principal to the survivor.
Funds in the bypass trust are covered by the exemption amount and are not taxed when the first spouse dies.
For example, if you leave an individual retirement account to a bypass trust, it cuts short the IRA's income tax deferral.
Your spouse could possibly gain access to the bypass trust in the case of reasonable financial need, but why tempt fate?
The traditional way to deal with the couples' dilemma is to set up a "bypass trust" from which a surviving spouse can draw income or principal.
With the exemption up and their net worth down, the Willigs might not need a bypass trust anymore, or at least not one funded to the full exemption amount.
Typically a bypass trust is worded so that at the time of death assets equivalent to the current legal estate tax exemption divert to the trust, generally benefiting the children.
That means that if you have a cookie-cutter plan that automatically funds a bypass trust for the full federal exemption at the death of the first spouse, you could incur unnecessary state taxes.
With a Clayton Q-Tip, those assets that are picked to fund the first spouse's estate exemption are put into a bypass trust, which can give the surviving spouse more control over the assets than if they were left in the Q-Tip.
At the death of the first--assume it's the husband--his assets, up to the exemption amount, go into a "credit shelter" or "bypass" trust.
On the death of the first, the exemption amount goes into a "bypass" trust for the kids, with the rest going to the surviving spouse.
At the death of the first spouse a chunk of his or her assets--equal to the exemption amount--would go into a "bypass" or "credit shelter" trust, with the rest going directly to the surviving spouse, who can inherit an unlimited amount free of estate tax.
You can also bypass the time and cost of probate by setting up a trust.
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