What happens to a bypass trust when the surviving spouse dies?

When the surviving spouse dies, all assets in the bypass trust go directly to the heirs. These assets “bypass” the second estate, so they are not included in the surviving spouse’s gross estate. Alternatively, assets could remain in the trust for the benefit of the heirs, if desired.

Is a marital trust the same as a bypass trust?

A bypass trust, or AB trust, is a legal arrangement that allows married couples to avoid estate tax on certain assets when one spouse passes away. The marital trust is a revocable trust that belongs to the surviving spouse. A revocable trust has terms that can be changed by the person who established the trust.

How does a bypass trust work for a surviving spouse?

Instead, the assets go to a “bypass trust” that can be used for the surviving spouse’s benefit, but with enough restrictions that the assets in the trust “bypass” the surviving spouse’s estate (i.e., are not included in his/her estate and therefore are not exposed to estate taxes in the future).

What do you call a spousal by pass Trust?

This is usually called a “spousal by-pass trust”, although it should have just been called a “by-pass trust” as the recipient may not always have been a spouse. A spousal bypass trust is a discretionary trust which is set up by the member/pensionholder to receive pension death benefits.

Do you have to pay inheritance tax on spousal bypass trust?

Provided they are distributed from the pension scheme within two years of the member’s death, then any benefits should not normally be subject to inheritance tax (IHT). Once in trust, the trustees can make income and/or capital payments to the spouse or other beneficiaries, as well as making loans available to the spouse.

Who are the beneficiaries of a trust after death?

The surviving spouse would receive all the income from the trust and distributions of principal as necessary. After the surviving spouse passed, the trust would be distributed to the children or other named beneficiaries.