A Physician Who Wasted the By-Pass Trust

A PHYSICIAN WHO WASTED THE BY-PASS TRUST

SOURCE: RECER EXPERIENCE.

In Baltimore, a physician came to see me and told me that she and her late husband, also a physician, had created an estate plan that had a provision for a By-Pass Trust... but, she said disappointedly, "It didn't work very well."

I inquired.

She went on, "Together, we had an estate of about $2 million and we had this very well drafted estate plan. But, we didn't have it divided correctly. Most of it was in joint ownership. My husband owned only $300,000.00 in his own name."

She emphasized that they could get only $300,000 into the By-Pass Trust ... instead of the $600,000 that they would like to have moved into it.

They lost the tax on $300,000. They lost over $100,000.

Immediately, I understood the problem, one I see repeatedly. With good planning, a couple like this one can, in essence, create two lifetime exemptions of $600,000.00.

If each has a separate estate of $600,000.00, the By-Pass Trust can save as much as $235,000.00 in federal estate taxes.

But, if the estates are not divided, the savings are less. In this case the couple saved approximately $100,000.00 and "left $135,000.00 on the table" in unused tax savings.

When you have your estate plan documents drafted, be sure to ask your lawyer how to divide the estate between the husband and wife in order to maximize your By-Pass Trust savings.