Most people don’t particularly like paying taxes, and if assets are inherited from a family member, it’s even more frustrating to have to pay taxes on something that was intended as a gift. However, with a little planning and forethought, you can utilize a specific document to avoid having excessive taxes taken out of your loved one’s inheritance. It’s called a bypass trust, and in some cases it can save hundreds of thousands of dollars.
How a Bypass Trust Works
Typical trusts are set up for those who have large amounts of wealth and are detailed and complex documents. Trusts allow for privacy, as the records are not made public, and prevents your heirs from having to wait out the probate process. Instead of taking months to receive their funds, your children or other recipients only wait a matter of days or weeks.
In the case of a bypass trust, it is structured to prevent your children from having to pay excess taxes on your estate. If you own a million dollar home and have expensive cars, varying states will require a large amount of taxes to be applied to the assets upon distribution. Essentially, your children are on the hook for paying a large amount of fees and don’t get to fully enjoy the gift you’ve bestowed to them.
Details of the Bypass Trust
For all intents and purposes, bypass trusts are set in stone as an irrevocable trust. Unless permission is granted by the beneficiaries, you cannot make any changes to the distribution of assets once it’s been created. The bypass trust gives you ultimate control even after you have passed on, as you can designate how the funds can be used and when they can be withdrawn.
Be sure to adhere to all regulations and have your bypass trust prepared by a professional in order to obtain the best possible result. The IRS can be very strict when it comes to these types of trusts, and if something is out of place, it might not stand and excess estate taxes would be due.
Laws for bypass trusts are constantly changing, and some states have allowed the exemption dollar amount to reach into many millions. What this means is that your children might be able to inherit a great deal of money before estate tax laws would kick in.
If you need assistance drafting a bypass trust or have questions about how it can help you, please contact The Law Office of Luis E. Barreto & Associates. We can guide you through the process to determine the best course of action for your assets.
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