• Skip to main content
  • Skip to primary sidebar
  • Skip to footer

RJS LAW - Tax and Estate Planning

RJS LAW: San Diego Tax Attorney | IRS | FTB | CPA | California

Header Right

SOUTHERN CALIFORNIA’S FINEST
LAW FIRM

COMPLIMENTARY CASE EVALUATION

SAN DIEGO
(619) 595-1655
ORANGE COUNTY
(949) 535-2000
El CAJON
(619) 777-7700
  • Home
  • About
    • Ronson J. Shamoun, ESQ., LL.M.
    • Chandara Diep, ESQ., LL.M.
    • Joseph Cole, ESQ., LL.M.
    • Devon J. Arabo, ESQ., LL.M.
    • Lauren Suarez, ESQ., LL.M.
    • Daniel Huynh, Esq., LL.M.
    • Christopher Engelmann, ESQ., LL.M.
    • Brian M. Malloy, Esq.
    • Steve S. Mattia, Esq.
    • Sam Imandoust, ESQ., LL.M
    • Kaveh Imandoust, JD, MBT, CPA
    • Andrea Cisneros Valdez, Esq., LL.M.
    • Martin Schainbaum, ESQ., LL.M.
    • Dod Ghassemkhani, ESQ.
    • Vincent Renda, Esq.
    • Pedro Bernal, Esq.
    • Melanie M. Shamoun
    • Sandie Portilla
    • Renae Arabo
    • Sabri P. Shamoun
    • Hilary Dargavell
    • Lupita C. Torres
    • Jewell Cornejo
    • Kesia Belford
    • Remy Hogan
    • Judith Jeremie
    • Melanie Chan
    • Tanner DeMera
    • Asia Smith
  • Practices
    • ERTC – Call Us Before It’s Too Late!
    • Tax
      • IRS TAX MATTERS
        • IRS Appeals
          • IRS Appeals Process
          • Contesting an IRS Levy
          • Why Retain RJS LAW for IRS Appeals
          • 4 Tips For Navigating The IRS Rapid Appeals Process
        • IRS AUDITS
          • IRS Correspondence Audits
          • What are IRS Field Audits?
          • Initial IRS Compliance Center Audits
          • IRS Office Audits
          • What happens in an IRS Audit?
          • Taxpayer Rights Under IRS Publication 1
          • IRS Warns Taxpayers About Scam
        • NOTICES
          • IRS Notices
          • IRS Letters
          • FTB Notices
          • Avisos en Español
        • IRS Collections
          • Avoiding and Eliminating IRS Tax Liens
          • Collection Due Process Hearing
          • CP 501 – IRS Notice
          • Failure to file a tax return: What happens?
          • How the IRS calculates interest
          • How to get a tax levy released
          • ACS – Automated Collection System
          • IRS Collections Process
          • IRS Interest Abatement
          • IRS Revenue Officers
          • Jeopardy Assessments and Jeopardy Levies
          • National Tax Agencies
          • RJS LAW Approach to Collections
          • IRS Statute of Limitations on Collections
          • Streamlined Installment Agreements
          • Tax Penalty Abatement
          • Taxpayer Assistance Orders
        • IRS Payroll Tax
          • Independent Contractor Reclassification Audits
          • IRS Forms 940 and 941
          • IRS Trust Fund Interviews
          • Payroll Tax Liability Payment Options
          • Trust Fund Recovery Penalties
        • IRS Wealth Squad
        • Offer in Compromise & Tax Settlements
          • OVERVIEW OF OFFER IN COMPROMISE PROCESS
          • The Offer in Compromise Process
          • Appealing an Offer in Compromise
          • How does the IRS evaluate an Offer in Compromise
          • Offer in Compromise and Dissipated Assets
          • Offer in Compromise Requirements
          • Pros and Cons of an Offer in Compromise
          • Why Choose RJS LAW?
          • Offer in Compromise Alternatives
          • Actual IRS Offer in Compromise Results
      • STATE TAX MATTERS
        • EDD California Payroll Tax Lawyer
          • EDD Investigations
          • EDD Collections – Liens, Levies, and Garnishments
        • CDTFA – California Sales Tax
          • California Sales Tax Appeals
          • California Sales Tax Audits
          • California Department Of Tax And Fee Administration – CDTFA
        • California State Tax Matters – California Franchise Tax Board | FTB | EDD
          • California Residency Audits
          • Discharging State Income Taxes in Bankruptcy
          • State Tax Practice – Outside of California
      • CRIMINAL TAX ISSUES
        • Criminal Investigation Division
        • IRS Criminal Investigation Division Tactics
        • Criminal Tax Defense – Tax Crimes
        • Currency Transaction Records & Suspicious Activity Reports
        • IRS Methods of Proof: Tax Fraud and Evasion
        • Methods IRS Agents Use to Locate Assets
        • IRS Special Agent Visits
        • Are You a Criminal Investigation Target?
        • Criminal Tax Attorney vs. White Collar Defense
      • CORPORATE TAXES
      • TAX COURT LITIGATION
      • Innocent Spouse Relief
    • International Tax
    • Estate Planning
    • Trust Litigation
    • Trust, Estate & Probate Litigation
    • Trust & Estate Administration
    • Probate
    • Bankruptcy
    • Civil Litigation
    • Criminal Defense
    • Accidents & Injury
    • Corporate & Transactional
    • Private Wealth Services
    • Real Estate Law
      • Landlord Tenant Law
    • Employment Law
  • Tax Institute
    • 8th Annual USD School of Law – RJS LAW Tax Controversy Institute – July 28th, 2023
    • 7th Annual USD School of Law – RJS LAW Tax Controversy Institute – July 15th 2022
    • 6th Annual USD School of Law – RJS LAW Tax Controversy Institute
    • 5th Annual USD School of Law – RJS LAW Tax Controversy Institute
    • 4th Annual USD School of Law – RJS LAW Tax Controversy Institute
  • Testimonials
  • Giving
    • Giving
    • RJS LAW Donates Billboard to the Girl Scouts
  • Awards
    • Awards
    • Ronson J. Shamoun at events with various dignitaries
    • SD50 Extraordinary Leadership
    • Media
    • Video Gallery
  • Blog
  • Pay
  • Contact
  • en English
    • en English
    • es Español

WINNER OF THE UNION TRIBUNE SAN DIEGO'S BEST TAX LAW FIRM

 


8 YEARS

Call
Contact
Blog
  • Home
  • About
    • Ronson J. Shamoun, ESQ., LL.M.
    • Chandara Diep, ESQ., LL.M.
    • Joseph Cole, ESQ., LL.M.
    • Devon J. Arabo, ESQ., LL.M.
    • Lauren Suarez, ESQ., LL.M.
    • Daniel Huynh, Esq., LL.M.
    • Christopher Engelmann, ESQ., LL.M.
    • Brian M. Malloy, Esq.
    • Steve S. Mattia, Esq.
    • Sam Imandoust, ESQ., LL.M
    • Kaveh Imandoust, JD, MBT, CPA
    • Andrea Cisneros Valdez, Esq., LL.M.
    • Martin Schainbaum, ESQ., LL.M.
    • Dod Ghassemkhani, ESQ.
    • Vincent Renda, Esq.
    • Pedro Bernal, Esq.
    • Melanie M. Shamoun
    • Sandie Portilla
    • Renae Arabo
    • Sabri P. Shamoun
    • Hilary Dargavell
    • Lupita C. Torres
    • Jewell Cornejo
    • Kesia Belford
    • Remy Hogan
    • Judith Jeremie
    • Melanie Chan
    • Tanner DeMera
    • Asia Smith
  • Practices
    • ERTC – Call Us Before It’s Too Late!
    • Tax
      • IRS TAX MATTERS
        • IRS Appeals
          • IRS Appeals Process
          • Contesting an IRS Levy
          • Why Retain RJS LAW for IRS Appeals
          • 4 Tips For Navigating The IRS Rapid Appeals Process
        • IRS AUDITS
          • IRS Correspondence Audits
          • What are IRS Field Audits?
          • Initial IRS Compliance Center Audits
          • IRS Office Audits
          • What happens in an IRS Audit?
          • Taxpayer Rights Under IRS Publication 1
          • IRS Warns Taxpayers About Scam
        • NOTICES
          • IRS Notices
          • IRS Letters
          • FTB Notices
          • Avisos en Español
        • IRS Collections
          • Avoiding and Eliminating IRS Tax Liens
          • Collection Due Process Hearing
          • CP 501 – IRS Notice
          • Failure to file a tax return: What happens?
          • How the IRS calculates interest
          • How to get a tax levy released
          • ACS – Automated Collection System
          • IRS Collections Process
          • IRS Interest Abatement
          • IRS Revenue Officers
          • Jeopardy Assessments and Jeopardy Levies
          • National Tax Agencies
          • RJS LAW Approach to Collections
          • IRS Statute of Limitations on Collections
          • Streamlined Installment Agreements
          • Tax Penalty Abatement
          • Taxpayer Assistance Orders
        • IRS Payroll Tax
          • Independent Contractor Reclassification Audits
          • IRS Forms 940 and 941
          • IRS Trust Fund Interviews
          • Payroll Tax Liability Payment Options
          • Trust Fund Recovery Penalties
        • IRS Wealth Squad
        • Offer in Compromise & Tax Settlements
          • OVERVIEW OF OFFER IN COMPROMISE PROCESS
          • The Offer in Compromise Process
          • Appealing an Offer in Compromise
          • How does the IRS evaluate an Offer in Compromise
          • Offer in Compromise and Dissipated Assets
          • Offer in Compromise Requirements
          • Pros and Cons of an Offer in Compromise
          • Why Choose RJS LAW?
          • Offer in Compromise Alternatives
          • Actual IRS Offer in Compromise Results
      • STATE TAX MATTERS
        • EDD California Payroll Tax Lawyer
          • EDD Investigations
          • EDD Collections – Liens, Levies, and Garnishments
        • CDTFA – California Sales Tax
          • California Sales Tax Appeals
          • California Sales Tax Audits
          • California Department Of Tax And Fee Administration – CDTFA
        • California State Tax Matters – California Franchise Tax Board | FTB | EDD
          • California Residency Audits
          • Discharging State Income Taxes in Bankruptcy
          • State Tax Practice – Outside of California
      • CRIMINAL TAX ISSUES
        • Criminal Investigation Division
        • IRS Criminal Investigation Division Tactics
        • Criminal Tax Defense – Tax Crimes
        • Currency Transaction Records & Suspicious Activity Reports
        • IRS Methods of Proof: Tax Fraud and Evasion
        • Methods IRS Agents Use to Locate Assets
        • IRS Special Agent Visits
        • Are You a Criminal Investigation Target?
        • Criminal Tax Attorney vs. White Collar Defense
      • CORPORATE TAXES
      • TAX COURT LITIGATION
      • Innocent Spouse Relief
    • International Tax
    • Estate Planning
    • Trust Litigation
    • Trust, Estate & Probate Litigation
    • Trust & Estate Administration
    • Probate
    • Bankruptcy
    • Civil Litigation
    • Criminal Defense
    • Accidents & Injury
    • Corporate & Transactional
    • Private Wealth Services
    • Real Estate Law
      • Landlord Tenant Law
    • Employment Law
  • Tax Institute
    • 8th Annual USD School of Law – RJS LAW Tax Controversy Institute – July 28th, 2023
    • 7th Annual USD School of Law – RJS LAW Tax Controversy Institute – July 15th 2022
    • 6th Annual USD School of Law – RJS LAW Tax Controversy Institute
    • 5th Annual USD School of Law – RJS LAW Tax Controversy Institute
    • 4th Annual USD School of Law – RJS LAW Tax Controversy Institute
  • Testimonials
  • Giving
    • Giving
    • RJS LAW Donates Billboard to the Girl Scouts
  • Awards
    • Awards
    • Ronson J. Shamoun at events with various dignitaries
    • SD50 Extraordinary Leadership
    • Media
    • Video Gallery
  • Blog
  • Pay
  • Contact

Leave a Comment

How Does a Bypass Trust Work?

Bypass Trust


Bypass Trust

A Bypass Trust allows you to provide for your surviving spouse and leave assets to your children, without the burden of estate taxes.

Some Background
As of 2023, the federal estate tax exemption is $12,920,000. This means estates valued below that number are exempt from the federal estate tax.

The value of an estate is the fair market value of property owned at the time of the decedent’s death. This includes items such as cash, securities, real estate, and business interests. The total of those assets is the decedent’s Gross Estate. But the Gross Estate is not necessarily that which may be taxed; there are certain allowable deductions for items such as mortgages, debt, and property passing to a surviving spouse which may reduce the value of the Gross Estate to the Taxable Estate.

If the Taxable Estate is above $12.92 million, federal estate tax will be applied to the amount exceeding the threshold value at rates up to 40%. Bypass Trusts are often used by high-net-worth families seeking to eliminate the burden of estate taxes.

The Structure of a Bypass Trust
A Bypass Trust is created upon the death of the first spouse wherein the family trust is divided into two separate trusts. The first trust is the Marital Trust—often referred to as the “A Trust” or “Survivor’s Trust.”  The second trust is the Bypass Trust—called the “B Trust,” or “Decedent’s Trust” or “Credit Shelter Trust.” The Marital Trust is a revocable trust, whereas the Bypass Trust is an irrevocable trust. A revocable trust is one that may be amended any time before the death of the creator of the trust, while an irrevocable trust generally may be not changed without the permission of the beneficiary.

The Marital Trust contains assets that will pass directly to the surviving spouse. The Bypass Trust, on the other hand, contains assets that will pass to any person or entity, typically the settlor’s children. The surviving spouse typically receives income from the Bypass Trust during the surviving spouse’s lifetime.

How It Works
Imagine you are a California resident with assets of $20 million, and you decide to use a Bypass Trust to eliminate estate tax. Your family trust would provide that upon the first spouse’s death, the trust be divided into two trusts, the Bypass and Marital.

Upon the first spouse’s death, the Marital Trust and the Bypass Trust would be created, and the Bypass Trust would be funded with $12,920,000 million worth of assets in order to maximize the deceased spouse’s federal estate tax exemption. This trust would be set up naming your spouse as the lifetime income beneficiary, with the remainder going to your children upon the surviving spouse’s death. Since the Bypass Trust is funded with the maximum federal estate tax exemption amount, it would be exempt from federal estate tax.

The Marital Trust would then be funded with the remaining $7,080,000. The surviving spouse would be the sole lifetime beneficiary of the Marital Trust as well. The Marital Trust would not be subject to estate tax because it would be part of the unlimited marital deduction but is included in the surviving spouse’s gross estate upon the surviving spouse’s death.

A Few Notes on Taxes
It is important to note that depending on the type of assets placed into the Bypass Trust, the beneficiary children may incur a future tax liability. While all assets will receive a step up in basis to their fair market value as of the date of the decedent’s death, the assets in the Bypass Trust only receive a one-time step up in basis (as of the decedent’s date of death). However, the assets in the Marital Trust will receive a second step up in basis as of the date of the surviving spouse’s death.

For example, there could be real property in the Bypass Trust that appreciated in value between the first and second spouse’s death. The children, however, would receive the real property with a basis as of the date of death of the first spouse. Should they choose to sell the house, the children would incur a tax liability on the amount of appreciation above that basis. For more information on basis, click here.

A Note on Gifts
As of 2023, the annual gift exclusion amount is $17,000 per individual ($34,000 per married couple). If a gift, or aggregate of gifts, to any one person exceeds $17,000 in that calendar year, you must file a gift tax return (Form 709). Aside from the simple example of giving someone cash, a gift also includes selling property to someone for less than its fair market value or forgiving a debt owed to you. You will not have to pay taxes on the gift; however, your lifetime gifts will reduce the amount of your estate tax exemption. For example, if you make $1 million of taxable gifts during your lifetime, your estate tax exemption would be $11.92 million (2023).

A Note on State Exemptions
California does not have an estate tax at the state level, but some states do. Be sure to check the estate tax exemption for your state, as it may be a lower amount than the federal exemption. This could necessitate having less than $12.92 million in the bypass trust.

Estate Planning is paramount for the future of your loved ones. Need help with where to start? RJS LAW’s exceptional team of Estate Planning attorneys is here to assist. Please contact us at (619) 595-1655 or by filling out the contact form below.

Written by Charles Ecker

About Us

Filed Under: Bypass Trust, Estate Planning, Trusts Tagged With: Bypass Trust, estate planning

Reader Interactions

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Primary Sidebar

Subscribe To RJS LAW

Email Address

Contact Us

  • This field is for validation purposes and should be left unchanged.

Recent Posts

  • US Tax-Savings for your Intellectual Property
  • California Court of Appeals Issues Decision on California Property Tax Assessment
  • Self-Employment Taxes

Categories

  • Advance Child Tax Credit
  • Asset Protection
  • Bank Fraud
  • Bankruptcy
  • Bankruptcy Attorney
  • Bankruptcy Laws
  • Bypass Trust
  • California AB5
  • California Payroll Taxes
  • California Sales Tax
  • Cannabis Tax
  • CARES Act
  • Cash Payments
  • Charitable Trust
  • Child Tax Credit
  • Company News
  • Contractor vs Employee
  • Contracts
  • Coronavirus
  • Court Settlements
  • COVID-19
  • CP14 Notice
  • CP504
  • CP504B
  • Cryptocurrency
  • Cryptocurrency Taxes
  • Digital Assets
  • E-Commerce
  • Economic Stimulus
  • EDD
  • EDD Audit
  • EDD Audit Penalties
  • Employee Retention Credit
  • Employment Law
  • ERTC
  • Estate Planning
  • Excise Taxes
  • Exemption Planning
  • FBAR
  • FBAR Penalties
  • FBAR Reporting
  • Filing Bankruptcy
  • FinCEN
  • Foreign Bank Account
  • Foreign Bank Accounts
  • Form 105
  • Form 5471
  • Form 8300
  • FTB Audits
  • FTB Collections
  • FTB Issues
  • FTB Penalties
  • Gambling Tax
  • Gaming Losses
  • Guardianship
  • Hiring a tax attorney
  • Homestead Exemption
  • How to Declare the Child Tax Credit
  • How-To Legal Advice
  • Inflation Reduction Act of 2022
  • Intellectual Property
  • International Tax
  • International Tax Attorney
  • International Tax Law for Non-Profits
  • International Tax Reporting Requirements
  • IRS
  • IRS Appeals
  • IRS Audits
  • IRS Collections
  • IRS CP14 Notice
  • IRS Form 8833
  • IRS Forms Explained
  • IRS Issues
  • IRS Notice of Tax Lien
  • IRS Notices
  • IRS OVDI
  • IRS Penalties
  • IRS Website
  • Levies
  • Liens
  • Lottery Taxes
  • Mail Fraud
  • Masters in Taxation – LL.M.
  • No Worries Law Firm
  • Offer in Compromise
  • Opportunity Zone
  • Penalties for Filing Late
  • PPP Loan
  • Probate
  • Property Tax Assessment
  • Proposition 19
  • Required Minimum Distribution
  • Restaurant Sales Tax
  • Retaliation Claims
  • Retiirement
  • Revocable Trust
  • RJS LAW In The Community
  • Sales Tax
  • San Diego Law Firm
  • SBOE Audits
  • SBOE Issues
  • Self Employment
  • Small Business
  • Stock Buyback
  • Stock Options
  • Stock Repurchase
  • Streamlined Procedures
  • Student Loans
  • Tax and Vice
  • Tax Attorney
  • Tax Brackets
  • Tax Controversy Institute
  • Tax Credit
  • Tax Deduction
  • Tax Delinquency List
  • Tax Gap
  • Tax Institute
  • Tax Law
  • Tax Liens
  • Tax on Social Media Influencers
  • Tax Penalties
  • Tax Tips
  • Taxes
  • The American Rescue Plan Act of 2021
  • Trust
  • Trusts
  • U.S. Supreme Court
  • Uncategorized
  • Unemployment
  • USD School of Law – RJS LAW Tax Controversy Institute
  • Vape Taxes
  • Wage Garnishment
  • Wills

Footer

Legal Resources

  • Payments
  • Services
  • Tax Law Blog
  • Video Gallery

SAN DIEGO

Map & Directions
FREE Underground parking in building

303 A Street
Suite 400
San Diego, CA 92101

Phone No.
(619) 595-1655

ORANGE COUNTY

Map & Directions

2 Park Plaza
Suite 870
Irvine, CA 92614

Phone No.
(949) 535-2000

El CAJON

Map & Directions

900 N. Cuyamaca St., Suite 101
El Cajon, CA 92020

Phone No.
(619) 777-7700


©2023 | RJS LAW Firm | All Rights Reserved | Privacy Policy