The short answer is yes, a bypass trust – more formally known as a credit shelter trust or a family bypass trust – can absolutely own stocks and bonds, and other types of assets. This is one of its primary functions. These trusts are designed to maximize the use of estate tax exemptions, shielding assets from estate taxes upon the death of the grantor. The trust allows assets transferred into it to grow free of estate taxes for the beneficiary, but the specifics of how those assets are held – like stocks and bonds – are crucial for effective estate planning. Currently, the federal estate tax exemption is substantial – $13.61 million per individual in 2024 – but planning with a bypass trust is still relevant for those approaching this level, or anticipating future changes to the exemption amount, as it offers a layer of protection and control. It’s vital to remember that proper titling and management of these assets within the trust are essential for the strategy to work as intended.
What happens if I don’t properly title my assets?
I once worked with a gentleman named Arthur, a retired naval officer who had meticulously built a portfolio of stocks and bonds over his career. He created a bypass trust as part of his estate plan, but unfortunately, he never formally retitled the assets into the name of the trust. After his passing, his family faced a significant headache, as the assets remained in his individual name. This meant the estate was subject to estate taxes on those holdings, defeating the entire purpose of the trust. The estate ended up paying tens of thousands of dollars in unnecessary taxes, a painful loss that could have been easily avoided. This situation highlights a critical point: creating the trust document is only half the battle – actively transferring ownership of assets is absolutely vital.
How do stocks and bonds fit into a bypass trust strategy?
Stocks and bonds are common holdings within a bypass trust due to their potential for growth and income. The trust’s trustee – the person or entity responsible for managing the trust assets – can invest in a diversified portfolio of stocks, bonds, mutual funds, and other investments, tailored to the beneficiary’s needs and risk tolerance. For example, a trustee might allocate a larger portion to stocks for long-term growth if the beneficiary is relatively young, or focus on bonds for income and stability if the beneficiary is retired. It’s important to note that the trustee has a fiduciary duty to manage the assets prudently and in the best interests of the beneficiaries. Approximately 70% of high-net-worth individuals utilize trusts as a core component of their estate planning, demonstrating the prevalence of this strategy.
Can a trustee actively manage the investments within the trust?
Absolutely. The trustee can actively manage the investments within the bypass trust, buying and selling stocks and bonds as needed, rebalancing the portfolio, and adjusting the strategy based on market conditions. However, the level of active management depends on the trustee’s expertise and the terms of the trust document. Some trusts specify a passive investment strategy – simply tracking a market index – while others allow for more aggressive strategies. I recall working with a client, Eleanor, who wanted her trust to support her grandchildren’s education. We designed the trust to allow the trustee to actively invest in growth stocks, with the goal of maximizing returns over the long term, to fund the future tuition costs. This proactive approach, combined with careful monitoring, ensured the trust would be able to meet its objectives. In fact, over a ten-year period, the investments grew substantially, providing a significant boost to the grandchildren’s education fund.
What happens if the estate tax exemption changes in the future?
Estate tax laws are subject to change, and the current high exemption levels may not last forever. If the exemption amount decreases in the future, a bypass trust can become even more valuable. By having assets already sheltered within the trust, individuals can protect those assets from potential estate taxes, even if their total estate exceeds the new, lower exemption amount. It’s a form of insurance against future tax increases. “Estate planning isn’t about death, it’s about life,” as many advisors say, and that sentiment is especially true when considering the dynamic nature of estate tax laws. For example, if the exemption were to drop to $6 million, a bypass trust funded with $7 million in assets would shield $6 million from estate taxes, leaving only $1 million subject to taxation. Therefore, establishing a bypass trust is a prudent step for anyone concerned about minimizing estate taxes and protecting their legacy, regardless of the current tax landscape.
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About Steve Bliss Esq. at The Law Firm of Steven F. Bliss Esq.:
The Law Firm of Steven F. Bliss Esq. is Temecula Probate Law. The Law Firm Of Steven F. Bliss Esq. is a Temecula Estate Planning Attorney. Steve Bliss is an experienced probate attorney. Steve Bliss is an Estate Planning Lawyer. The probate process has many steps in in probate proceedings. Beside Probate, estate planning and trust administration is offered at Steve Bliss Law. Our probate attorney will probate the estate. Attorney probate at Steve Bliss Law. A formal probate is required to administer the estate. The probate court may offer an unsupervised probate get a probate attorney. Steve Bliss Law will petition to open probate for you. Don’t go through a costly probate. Call Steve Bliss Law Today for estate planning, trusts and probate.
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