If you’re receiving disability benefits, are retired, or are thinking ahead about how to protect your family’s future, estate planning may already be on your mind. One powerful—but often misunderstood—tool in estate planning is the Bypass Trust.
What exactly is a Bypass Trust, and why might it matter to you?
A Bypass Trust is a type of trust used by married couples to reduce estate taxes when passing assets to their heirs. It’s sometimes called a “Credit Shelter Trust,” “Family Trust,” or “A-B Trust.”
Here’s how it works in plain English:
When one spouse dies, part of their estate goes into a trust (the Bypass Trust). This trust is designed to “bypass” the surviving spouse’s taxable estate—meaning it won’t be counted when the second spouse eventually passes away. This can help reduce or eliminate federal estate taxes.
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Why It Used to Be So Popular
Years ago, before the federal estate tax exemption was as high as it is today, Bypass Trusts were a key tool for middle-class families. But in 2025, the estate tax exemption is over $13 million per person—which means most families won’t owe federal estate taxes at all.
Still, there are some good reasons to consider a Bypass Trust:
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When a Bypass Trust Might Make Sense
- State Estate Taxes
Some states have lower estate tax exemptions than the federal government. A Bypass Trust may help reduce state estate taxes, even if federal taxes aren’t a concern. - Blended Families
If you’re remarried and want to make sure children from a previous marriage inherit certain assets, a Bypass Trust can offer peace of mind. - Asset Protection
Assets in a Bypass Trust are typically shielded from creditors, lawsuits, or a future spouse’s claims. - Medicaid Planning
In some cases, Bypass Trusts can be structured in ways that help with Medicaid eligibility, although this area is complex and requires careful planning.
Key Considerations
- Cost and Complexity: Setting up a Bypass Trust involves legal fees and ongoing management. It’s not a “set it and forget it” arrangement.
- Flexibility: Newer estate planning tools, such as portability of the estate tax exemption between spouses, may offer simpler alternatives for some families.
Is It Right for You?
If you’re a former disability client who is now making long term plans, or if you’re caring for a spouse or parent with significant assets, a Bypass Trust might be worth considering—especially as part of a broader estate plan.
Every situation is unique. If you’d like to learn more about how trusts, Medicaid planning, and estate strategies could work for you, our firm is here to help.
We don’t just win disability claims—we help our clients plan for life after disability, and for whatever comes next.
Call us today at 800-562-9830
Or contact us online: DisabilityDenials.com