Law Offices of Joan Grimes

Can I Terminate My Bypass Trust?

We get this question all the time! It is a great question and yes, there are ways to terminate bypass trusts that are no longer necessary and are administratively burdensome.

Question (1): What is a bypass trust?

A bypass trust is an estate-planning tool that is used to create a separate irrevocable trust after the death of the first spouse. Some trusts provide that while the surviving spouse is entitled to unlimited income from the bypass trust assets, there are certain limits and restrictions placed on the surviving spouse with regard to the bypass trust principal. Prior to 2012, bypass trusts were commonly used to assist families in minimizing estate taxes. However, now that Congress has drastically increased the federal estate tax exemption, most families find that the bypass trust is no longer necessary for their family.

Question (2): I do not think my family needs a bypass trust. How can I get rid of it?

The easiest way to remove the bypass trust provision is by amending or restating the estate plan while both spouses are alive. If both spouses are living and have capacity, then this provision can be easily removed.

However, if one spouse has already passed or if the bypass trust was already established after the death of the first spouse, terminating the bypass trusts requires a couple more steps, including receiving court approval. To approve the termination of the bypass trust, the court requires unanimous consent from the surviving spouse and all bypass trust beneficiaries.

While terminating the bypass trust is more work after the death of the first spouse, it is often beneficial for some families in which the surviving spouse would like unrestricted access to the bypass trust funds. Additionally, terminating the mandatory bypass trust also can help reduce administrative costs associated with the bypass trust and eliminate capital gain taxes which would be due after the death of the surviving spouse.

Please also note that some families may still wish to establish the bypass trust after the death of the first spouse because of their unique family structure. For example, bypass trusts are sometimes implemented in blended family situations in which each spouse has children from a prior marriage. There are also other reasons that some families may wish to keep their mandatory bypass trust that should be discussed with an attorney.

If you have an established bypass trust and you would like to discuss whether you can or should terminate the bypass trust, schedule a 30-minute free consultation at our office. We are happy to review your trust and bypass trust. If you also think that a bypass trust might be beneficial for your family, we also assist families with establishing estate plans that include mandatory bypass trusts.

If you would like to discuss establishing an estate plan for your family, I see people every day for a FREE 30 minute consultation.

This article provides only general legal information, and not specific legal advice. Information contained is not a substitute for a personal consultation with an attorney. © 2017 Joan Grimes.

Law Offices of Joan Grimes can be reached at 925-939-1680 or visit www. lawofficeofjoangrimes.com. Offices in Brentwood & Walnut Creek.