People work their entire lives in order to be able to live comfortably. Over time people acquire personal property that help people enjoy life and eventually retire. A lot of the time, people will have money or other assets that they want to be able to pass on to their family when they die. Since people cannot take assets with them, certain legal tools have developed so people can distribute their assets.
One of these tools is the bypass trust. A bypass trust allows someone to give money to a future generation. It allows one generation to continue using the asset, but ultimately the asset belongs to a future generation. This type of trust allows people to transfer to more than one generation which can be useful if people are looking to give money to children or grandchildren while their spouse is still alive.
One benefit of a bypass trust is that it protects the assets in the trust from the current generation’s creditors. Since the money belongs to another generation, the current generation’s creditors cannot have access to the money to pay debts. Furthermore, bypass trusts also ensure that the current generation cannot change who the assets will ultimately go to since the future generation owns the rights to trust’s assets.
Despite the benefits, there are also some downsides to using bypass trusts. One, trusts may be subject to more severe taxes. Therefore, future generations may end up paying a lot in estate and capital gains taxes. Furthermore, a bypass trust only gives the current generation limited access to the assets which could cause them financial difficulties if they money.
Michigan residents should explore all their legal rights and options before setting up their estate plan or creating a trust. The use of trusts may be appropriate for some residents depending on their situation.
Source: Forbes, “Should Planners Bypass the Bypass Trust?,” David John Marotta, Aug. 18, 2013