Because estate planning laws are constantly changing, individuals often wonder if they should be changing their estate plans or utilizing other strategies. Some of these changes are known—such as the reduction of the federal estate tax exemption in 2026—whereas others are passed by Congress last minute and can be difficult to predict. In order to prepare for these changes, estate planning attorneys have recommended two strategies for some married couples hoping to limit their federal estate tax liability: the spousal portability election and bypass trusts. Below is information about both of these strategies, and how they can be helpful to Texas married couples going through the estate planning process.
What is a Bypass Trust?
A bypass trust allows married couples to not have to pay the estate tax on certain assets after one spouse passes away. When one spouse dies, the assets within the estate are split into two separate trusts: a marital trust, and a bypass trust. For those assets placed in the bypass trust, the surviving spouse does not own those assets but can access the trust and utilize some of the funds within it. Someone must act as the trustee of this trust, it can be the surviving spouse, and ensures the assets are divided appropriately into each trust and that the trust’s assets are being carefully managed. The assets not placed in the bypass are placed into the marital trust, which the surviving spouse can access at any time and use the funds as they see fit.
Bypass trusts are useful for individuals hoping to limit their federal estate tax liability because up to $24.12 million in the bypass trust are not subject to the estate tax. And assets in a bypass trust are not overseen by the probate court process. Similarly, assets in a marital trust are not subject to the estate tax at all.
What is a Spousal Portability Election?
The Spousal Portability Election, passed into law by Congress in 2013, allows a surviving married couple to use the unused federal gift and estate tax exemption of the deceased spouse in the future. Basically, this allows them to claim two estate tax exemptions. However, the portability is not automatic and the deceased spouse’s estate must file a tax return that “elects” to allow the surviving spouse to use the unutilized exemption.
Because incorporating the spousal portability election and bypass trusts into a Texas estate plan may seem overwhelming, experienced estate planning attorneys are here to help with the process.
Contact a Houston Estate Planning Attorney
If you or a loved one is interested in creating a bypass trust, contact the Houston estate planning attorneys at McCulloch & Miller, PLLC. We understand that amidst changing times, knowing what to incorporate into your estate plan can be confusing. With decades of experience, our attorneys are here to answer any questions you may have and advise you on the steps that are best for you and your family. to schedule a no-obligation consultation and to speak with one of our knowledgeable attorneys, give us a call today at 713-333-8900.