In the past, many people tried to achieve a similar result – using both spouses’ exemptions – through the use of a trust, sometimes called a “bypass trust.” Typically, when the first spouse died, some of his or her assets (often a sum equal to the current exemption amount) went into a trust, and the rest was left directly to the surviving spouse. The trust might pay income and principal to support the spouse during his or her lifetime, after which the assets would go to children or other heirs. When the surviving spouse died, the trust property wasn’t included in his or her estate, and so it didn’t “count” toward the exemption amount.
The new law might make these kinds of bypass trusts unnecessary for some people – at least until the end of 2012.
You might want to consider the costs and benefits of eliminating such a trust from your will, or at least providing that the trust provisions won’t take effect unless the law changes again such that the trust becomes a good idea.
Some of the disadvantages of a bypass trust include:
On the other hand, there are some powerful reasons to keep a bypass trust. For instance:
As an aside, if your old will says that the amount that will go into a bypass trust is equal to the exemption amount, you might want to review this in light of the fact that the exemption amount in 2011 and 2012 has been dramatically increased to $5 million. You might prefer to say that the trust assets will be the exemption amount or a certain dollar figure, whichever is less.