A trust designed to minimize federal estate taxes for married couples is a common estate planning tool. This type of trust, sometimes referred to as a bypass trust or an A-B trust, allows the deceased spouse’s assets, up to the federal estate tax exemption amount, to be sheltered from estate taxes upon the surviving spouse’s death. For example, if the applicable exemption is $13.61 million (in 2024), assets up to that value could be placed in the trust, avoiding taxation in the surviving spouse’s estate.
Its importance lies in its ability to preserve wealth for future generations. By strategically utilizing the federal estate tax exemption, families can significantly reduce their overall tax burden. Historically, with fluctuating exemption amounts, this mechanism was particularly valuable, offering a degree of certainty and control over asset distribution. Its use allowed for the provision of income and support to the surviving spouse while maintaining the sheltered assets for eventual distribution to other beneficiaries, such as children or grandchildren.
