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A bypass trust could be a good estate planning tool in Florida

On Behalf of | Sep 1, 2022 | Estate Planning

When you pass away in Florida, your assets are split between the government and your beneficiaries, including your descendants, charitable organizations, and any debts you might have. Setting up a Bypass Trust will allow you to direct your assets exactly where you want them.

Understanding a bypass trust

Trusts are estate planning tools that can be used to protect your assets and ensure that your beneficiaries receive them according to your wishes. A bypass trust, a credit shelter or AB trust, is a unique type of trust that lets you pass your assets to your spouse and children without incurring estate taxes.

There are two sections to a credit shelter trust, i.e., “A,” the marital trust, and “B,” the bypass trust. The marital trust will be used to provide for your spouse’s needs during their lifetime. The bypass trust, however, will be used to provide for your descendants’ needs after your spouse passes away.

How a bypass trust works

Assuming you have $13 million worth of assets you want to pass onto your spouse and children, the federal government can take almost 40% of your estate in taxes if you have no trust. However, if you use a bypass trust, you can shelter your assets from estate taxes.

For example, if you will pass $8 million to your spouse and $2,500,000 to each of your two children. You would put $8 million into the marital trust for your spouse and $2,500,000 into each child’s trust. All these transfers won’t be subject to estate taxes because Florida has no inheritance tax, and the federal government only imposes estate taxes if the value of your assets is worth $12.06 million (or $24.12 million for couples) as of 2022.

Deciding if a bypass trust is right for you

People create bypass trusts mainly to minimize or avoid paying estate taxes. This can be beneficial when your assets exceed the federal estate tax exemption limit. The downside is that your partner will still pay capital gains tax if the assets grow in value.

While there are so many diverse types of trusts you can create for your family; a bypass trust can be a perfect choice if you have a significant amount of assets. Be sure to discuss your estate plan with your family and legal representative to find the most suitable options for you.