Funding A Bypass Trust

does anyone have the irs code number that specifies the regulations ? the question that i have is can a wife place more than half of the couple's assets into the bypass trust, upon the death of her husband, as long as the amount is less than the exemption amount ?

example - lets say the couple has 2 million in assets, with the individual exclusion amount being 1.5 million (this is just for illustration).

can the wife place 1.5 million into the bypass trust, keeping 500,000 in the revocable portion ? or must she limit the amount she places into the bypass trust to 1/2 of the total assets, thereby only placing 1 million into the bypass trust, and keeping the other million in the revocable portion ?

[ Edited by hard-money-lender on Date 02/11/2008 ]

If the husband has died, the surviving spouse has complete autonomy to do whatever she wants with HER estate.

hi newkid,

thanks for the reply. there may be some confusion. the husband has died. the surviving spouse, in this case the wife, will have complete autonomy over the survivor portion. however this is definitely not true of the irrevocable portion.

living trusts do not have to create a bypass trust (credit shelter trust or family trust - all the same thing). but if they do, the trust dictates the amount of control the wife has over the irrevocable portion. in a nutshell, about the max the wife can have is she gets all the income, and can use it for food, housing, and other basic needs.

but that is the most that the irs will allow her to have. more than that, and the assets are considered hers, and there is no bypass trust at all.

the trust itself allows the wife to place up to the exemption amount, if that is legal to do. i am trying to determine the legality of it.

the reason for a bypass trust comes in 3 basic flavors. first, it allows the deceased spouse some say-so about the beneficiaries of that portion. secondly, if the trust has the correct provisions in it, the assets are protected from the creditors of the wife, and thirdly, are never again subject to any possible estate tax.

so while the wife loses some control, she also gains a lot of protection.

thanks again for posting.

Sorry, your question did not make it clear that the deceased husband had already established an irrevocable trust. The assets held in the irrevocable trust are not part of the surviving spouses estate and she has no control over them, the trustee does. Even though the surviving spouse may have a life estate created by the irrevocable trust, the final disposition of the trust assets have already been defined by the language of the trust and the surviving spouse has no say in the matter.

Whatever estate the surviving spouse has is held outside her deceased spouse's irrevocable trust. At her death, the surviving spouse is free to dispose of her estate in any manner she deems appropriate.

Unless the surviving spouse remarries, there is no federal estate tax advantage to be gained at this point by an irrevocable (bypass) trust . With no tax benefit to be derived by partitioning the estate between irrevocable and revocable assets, I think your question is merely academic.


[ Edited by NewKidInTown3 on Date 02/12/2008 ]