Bypass Trust

Definition of "Bypass trust"

Type of trust used to remove assets from a surviving spouse's estate, thereby excluding such assets from federal estate tax upon the death of the surviving spouse. This type of trust allows for a lifetime benefit to be available to both spouses while living, as well as to a single surviving spouse. A bypass trust permits a maximum of $1.2 million transfer to heirs of the spouses on a tax-free basis under the unified gift and estate tax credits.