The bypass trust is often part of the overall strategy that is employed with arranging for the orderly transfer of properties and assets in the event of death. Generally, a bypass trust is arranged to allow this transfer from a parent to a child or in some cases from one spouse to another. There are several typical provisions that are included in this type of irrevocable trust that help to ensure that the intentions of the deceased are carried out properly. Essentially, bypass trusts help to ensure that the estate is arranged so that the estate taxes are kept within reason, and that the assets of the estate are used in a manner that is within the terms outlined by the deceased.
A bypass trust normally works to establish a set of conditions that will provide for loved ones over the long term. To this end, there are usually provisions that control the amount of withdrawals from the trust over time, as well as protecting the assets within the trust in the event that the beneficiary of the trust should choose to marry or experience a specified range of financial events. Essentially, these types of provisions protect the beneficiary from losing the financial security that was apparently the original intention of creating the bypass trust.
Typically, irrevocable trusts of this nature will also stipulate the type of withdrawals that can be made from the bypass trust, subject to the approval of the executor of the trust arrangement. This may include the ability to withdraw assets that can be used for continuing education, medical emergencies, or the purpose of a home. Often, the bypass trust will also include provisions for some sort of monthly or annual living allowance, with the understanding that the amount may be adjusted to allow for changes in the economy.
Along with stipulations involving specific purposes, many trusts of this nature will allow a limited amount of funds to be withdrawn annually for any situations that are not specifically addressed in the trust agreement. In some cases, this may be a fixed amount of the principle value of the trust, or this discretionary amount may be based on the amount of interest income generated in the previous calendar year by the estate.
