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Forget the bypass trust? Not so fast

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Due to the federal estate tax ex­­emp­­tion “portability” provision for married couples, some estate planners say that the bypass trust, previously a staple of estate planning, has been rendered obsolete. Portability was permanently extended by the Ameri­­can Taxpayer Relief Act of 2012 (ATRA).

Strategy: Don’t junk the bypass trust concept just yet. These arrangements still offer significant advantages.

A tale of two tax breaks: In the past, wealthy individuals often re­­duced their exposure to federal estate tax liability by combining two tax breaks.

  1. The unlimited marital deduction: As a general rule, any transfer between spouses, whether it is made during one’s lifetime or upon death, is completely exempt from federal estate and gift taxes.
  2. Estate tax exemption: Transfers to a nonspouse beneficiary may be sheltered by the federal estate tax exemption. Under ATRA, the exemption amount is $5 million adjusted for inflation ...(register to read more)

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