Ohio residents may be aware that trusts can be a flexible and valuable estate planning tool. However, they are also costly and complex, and they may be rendered unnecessary by changes in tax laws or evolving family dynamics. Bypass trusts were a prudent option for many couples in the 1990s, but they offer few real benefits today.
In the 1990s, estates valued at more than $675,000 were subject to a 50 percent estate tax, but couples could save estate taxes by setting up a bypass trust. This allowed the estate tax exemption to be doubled by placing the assets of a deceased spouse in a trust rather than passing them directly to the surviving spouse.
The need for bypass trusts fell sharply in 2001 when the estate tax exemption was increased from $675,000 to $1 million. The combining of spousal exemptions that a by-pass trust achieves has also been written into the tax code. The estate tax exemption rose again in 2009 to $3.5 million, and it now stands at $5.45 million.
While bypass trusts may not offer the same tax advantages that they once did, they may still be an effective estate planning tool in certain situations. In situations where both spouses have passed away, by-pass trusts may allow estates valued at more than $10.90 million to pass to children with no estate taxes due. Attorneys with experience in this area may suggest that their clients revisit their estate plans on a regular basis to ensure that their needs are still met and their wishes are still accurately reflected. In addition to potential tax benefits, trusts offer people a greater degree of control over how their assets will be distributed and may protect their estates from the public scrutiny of probate.