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What is a Lifetime Bypass Trust?


You worked diligently to save a nest egg for retirement and set aside assets for your children and grandchildren. You have a will and an  advance directive drafted. You are finished with estate planning days are over, right? Actually, if you own substantial assets you intend for beneficiaries to inherit, it might be wise to set up a lifetime bypass trust, or family bank trust. This trust works to protect your assets from federal estate taxes by dividing trust funds into sub-trusts. Read on to learn more about trust mechanisms. 

Creating a Lifetime Bypass Trust

Lifetime bypass trusts are irrevocable. This means that once created, the bypass trust cannot be altered or amended by the settlor (the person who makes the trust). The trust allows the settlor to make lump sum or incremental monetary distributions to the trust up to a million dollars total. The funds allocated to the trust are exempt from estate and inheritance taxes. The funds are also exempt from gift taxation, and could not be used in a property valuation in the event that the settlor gets divorced. In addition, funds in the lifetime bypass trust are exempt from a creditor’s reach.

To create the trust, you transfer assets to the trust and designate your spouse as trustee. A trustee manages the trust. You can also designate your children and extended relatives as beneficiaries of the trust. Some settlors allow beneficiaries to receive interest distributions from the trust while the settlor is still living. Others establish the trust so that benefits are paid out after the decedent’s death. The settlor can also grant the spouse trustee the ability to appoint trust assets back to them at the spouse trustee’s death bed. Family bank trusts allow families to protect and preserve wealth over generations. 

Additional Benefits

Any assets that the settlor contributes to the family bank trust are removed from the settlor’s estate. This means the settlor can no longer report the funds as income, but it also shields those designated assets from estate taxes.  Removing a good portion of an estate to  a bank trust is also a guarantee that the decedent’s family will avoid probate, prying eyes, or will challenges. This is because beneficiaries have already been named, including their pre-designated distributions. The settlor also has the power to select a substitute trustee or more than one trustee who can decide how assets are invested, and if or when family members can borrow from the trust over their lifetimes. Creating a family bank trust protects your wealth from losses and also gives you control over your asset distributions to beneficiaries even after death. 

Contact Attorney Eric Millhorn Today

If you have questions about creating a trust or are overwhelmed by the estate planning process, call estate planning attorney Eric Millhorn. With offices located conveniently in The Villages, Mr. Millhorn focuses on elder law, estate planning and trust formation. He can assist you to create a trust that serves your needs and comes with additional tax and estate benefits. Call Millhorn Elder Law Group today to schedule a consultation.


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