Stuck in Bypass Trust

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jimmy
Posts: 69
Joined: Sat Apr 27, 2013 1:29 am

Stuck in Bypass Trust

Post by jimmy »

Somebody I know is in a Bypass Trust created when her husband passed away in 2010. At the time the estate tax discussion was up in the air and a family member/attorney decided to set up a Bypass Trust. The wife's estate at the time was 1.5mm and today is about 2mm. All of the investments and most of the bank accounts were put into the bypass trust (800K). Now the 79 y/o surviving spouse gets confused every year on how much to take out and frustrated on paying for 2 tax returns for something that now provides her no benefit with the estate tax exemption at 5.4MM and has only disadvantages by no step up to her heirs. She doesn't need the income from the trust and only wants to pass everything to her heirs. Is there anything she can do to break up the trust or is she stuck in this? Anything else I'm not thinking of.. Thanks for any suggestions.
mhalley
Posts: 10424
Joined: Tue Nov 20, 2007 5:02 am

Re: Stuck in Bypass Trust

Post by mhalley »

You are going to need an estate lawyer. Depends on the state. A trust can be killed for several reasons, including "not serving a material purpose" of the creator, which it sounds like is the case here. Here are some articles regarding killing a trust:
http://www.forbes.com/sites/ashleaebeli ... ble-trust/
http://michaelgraycpa.com/2013/06/28/sh ... w-changes/
Mike
Topic Author
jimmy
Posts: 69
Joined: Sat Apr 27, 2013 1:29 am

Re: Stuck in Bypass Trust

Post by jimmy »

Thanks Mike..
Surviving spouse is in CA if that matters.. Also has anybody out there "killed a trust?" Would be interested in hearing how it went.
Sagenick48
Posts: 376
Joined: Sat Nov 02, 2013 8:22 am

Re: Stuck in Bypass Trust

Post by Sagenick48 »

I suppose it all depends on the state and the terms of the trust. In my state the common forms of trusts usually have clauses that let the trustee, an advisory committee or trust protector, terminate a trust for any reason or because it no longer serves it purpose. They also have clauses that allow for distributions of principal to the surviving spouse usually for health, support and maintenance. In addition, again in my state a court can terminate a trust even if there is no language but it is harder and considerably more expensive.

Before I would jump at the conclusion that the trust "serves" no useful purpose I would review the trust carefully with a knowledgable attorney. Depending on the language of the trust, the assets in the trust would be unavailable for medical assistance calculations (nursing home costs). In addition the trust can provide asset protection for the beneficiaries.

I have seen family members advise Mom that she should break a trust so,that she can have "her" money followed shortly later by telling Mom that she should give all her money to them "so the nursing home doesn't get it". Not only does it usually not work, but it leaves Mom broke while the kids get "their" inheritance while their Mom is still alive.

You can tell I don't think much about children who do that, it's a form of elder abuse, it not "their" inheritance.
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