Do I Still Need a Will if I Have an A-B Bypass Trust?

By Heather Frances J.D.

Bypass trusts allow spouses to split their estates for tax purposes, thereby avoiding potentially high federal tax rates. The most effective trusts are those that include as many of a couple's assets as possible, but this does not mean the couple does not need a will. Wills can pass ownership of property not held by the trust, along with accomplishing other purposes a trust cannot.

Bypass trusts allow spouses to split their estates for tax purposes, thereby avoiding potentially high federal tax rates. The most effective trusts are those that include as many of a couple's assets as possible, but this does not mean the couple does not need a will. Wills can pass ownership of property not held by the trust, along with accomplishing other purposes a trust cannot.

How Bypass Trusts Work

Bypass trusts, sometimes called A-B trusts, are those structured to split the couple's assets when one spouse dies, placing each half in a separate trust. One trust holds the half that belonged to the deceased spouse, while the other half goes to a trust held by the surviving spouse. Assuming the trust document is up-to-date and the assets are titled properly, most of the couple's assets can be distributed this way outside of a will. While the surviving spouse is still alive, he has the use and benefit of the assets in both trusts, and upon his death, the assets in both trusts go to the designated trust beneficiaries.

Protect your loved ones by a legally binding will. Make a Will Online Now

Benefits of Bypass Trusts

Because the assets are split when the first spouse dies, lowering the value of each spouse's estate, the couple may avoid certain federal or state estate taxes. For example, if the estate tax threshold is $5 million and each spouse's trust held $3 million, the couple avoids paying hefty estate taxes on the $1 million by which they would have exceeded the estate tax threshold without an A-B trust. Tax rates and rules change regularly, so it may be best to consult with a lawyer if you aren't sure whether such a trust is right for you.

Wills Distribute Additional Assets

Typically, trust documents do not distribute everything the spouses own, and a will is needed to ensure the remaining assets are distributed according to the deceased spouse's wishes. For example, personal property and family heirlooms may need special direction. A will, sometimes called a pour-over will when a trust also exists, can ensure that smaller or unique assets are appropriately distributed. The will can put all of those assets into the trust or it can give certain assets to a named beneficiary, such as a family heirloom to a particular child. Without a will, state law controls who inherits assets not held in the trusts.

Wills Have Other Purposes

Bypass trusts are designed primarily to avoid estate taxes, so they may not be effective to accomplish other estate-planning tasks. For example, trust documents do not name an executor to take care of the administration of the deceased's estate. Wills can also name a guardian for the deceased's minor children, a topic inappropriate for trust documents. Thus, a will is an important part of an overall estate plan, even one that has a bypass trust to distribute most of the couple's assets.

Protect your loved ones by a legally binding will. Make a Will Online Now
Difference Between Beneficiary Trust & Marital Trust

References

Related articles

Joint Trust Vs. Single Trust

Although a single trust and a joint trust are designed for the same basic purpose of leaving property to specific individuals upon the death of the person or persons who created the trust, there are some differences. The primary distinction between a single trust and a joint trust is the number of people who create the trust and manage the trust property. A joint trust, however, can provide tax relief not offered by a single trust for estates worth a considerable amount of money.

Is a Living Trust Liable or Subject to Probate?

A living trust holds assets that are managed by a trustee for intended beneficiaries. Also called a revocable trust, it differs from other trusts in that the trust creator, or grantor, can also serve as the trustee and can make changes to, or even revoke, the trust in its entirety during his lifetime. Living trusts are attractive because the grantor retains ultimate control over his assets while he is alive, but they are most commonly used to avoid probate.

Can a Will Assign How My Husband's Trust From His Mother Is Disbursed?

Your husband sets out in his will how he wants his assets to be distributed after his death. Not all assets pass under a will; some property, like insurance policies and investment accounts, can pass to a designated beneficiary independent of the will. Whether a beneficiary can assign his share of a trust depends upon the language of the trust document.

LegalZoom. Legal help is here. Start Here. Wills. Trusts. Attorney help.

Related articles

Does a Will Supersede a Trust?

A will and a trust are separate legal documents that commonly work together under a unified estate plan. While the will ...

Trusts Vs. Last Wills in California

Probating a will can be a long and expensive process depending on the size and complexity of the estate. The cost of ...

Living Trusts & Surviving Spouses

A trust is an estate planning device created when a grantor surrenders his property to a separate legal entity for the ...

Living Trust for Married Couples

A living trust is a popular estate-planning tool, and is frequently used to avoid probate. You can use a living trust ...

Browse by category