YOU CAN’T TAKE IT WITH YOU
established. Third, the grantor may be subject to gift tax on the assets placed in the trust, depending upon the assets’ value. And finally, the grantor will still be responsible for any fees charged to set up the trust, and perhaps, some management fees charged by the trustee. Usually, though, the trustee is paid directly from the trust.
Bypass Trusts Bypass trusts are also known as marital or A/B trusts. Married cou- ples who have an extensive net worth, and therefore need all the uni- fied credit they can get, establish them. Bypass trusts divide a couple’s assets so that each of them may claim the maximum unified credit ($1 million in 2002 and increasing until 2010 when it is repealed). A bypass trust will help reduce, or even eliminate, estate taxes by passing the trust’s assets directly to the heirs, and thus, bypassing the surviving spouse’s estate. Normally, when one spouse dies, he or she bequeaths the entire estate to the other spouse. The surviving spouse doesn’t need to worry about estate taxes because assets inherited from a spouse aren’t subject to estate taxes. But, the deceased spouse hasn’t used their unified credit. When the surviving spouse dies, the beneficiaries will only be able to apply one unified credit, making the rest of the assets subject to estate taxes.
One way to make sure that the bypass trusts work is to make sure that each spouse has enough assets to maximize the benefit of the uni- fied credit. Sometimes this means retitling assets that are in one spouse’s name to the other spouse’s trust. One spouse may give the other spouse an unlimited amount of money without triggering any gift tax. So, if you find that your spouse has less money in his or her name, and his or her trust, give your spouce some of yours. The point of establish- ing bypass trusts is to maximize the unified credit for each of you.
For example, Matthew and Cynthia Client have a joint gross estate of $5 million. Both of them are in good health now, but are in their early 80s. Matthew has been worried that if one of them were to die soon, their estate would be hit with enormous estate taxes. They would like to establish A/B trusts to help reduce the amount of taxes their children will have to pay on their estate. Upon dividing their assets, Matthew discovers that he only has about $1.2 million in assets in his name, while Cynthia has $3.8 million. Since they want