Discussion:Bypass Trust not funded before Surviving Spouse's death
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Discussion Forum Index --> Tax Questions --> Bypass Trust not funded before Surviving Spouse's death
| 12 February 2008 | |
| I have two spouses who died in 2007, within 5 weeks of each other, leaving no time to actually get the Bypass Trust funded.
They don't fall under any "simultaneous death" rules or provisions, so I'm listing all the assets on the 706 of Spouse #1, with a 50% community property deduction (California), and everything above $2 million goes to Spouse #2 as a marital deduction. So far, so good. No FET owed on this return. Now, I'm trying to figure out the best way to list the gross estate on the 706 for Spouse #2, and show that the $2 million that was supposed to go to the Bypass Trust - but didn't - really is out of the estate. Any suggestions? Has anyone dealt with this situation before? Thanks for your input. | |
| 13 February 2008 | |
| I had the exact same situation - back in 1999. I can't remember all the details, and as I flip through the 706s, they are not triggering my memory....but clearly the strategy was to have a taxable estate in both estates to make use of the lower tax brackets. If the tax is less in total, you might want to rethink treating everything above $2 million as a marital deduction.
The fact that a trust was not actually funded before the death of the second spouse would not have caused me to change my treatment from the intention as documented in the trust. I've never seen the trusts funded that fast. I'm sorry I can't remember more.... | |
| 13 February 2008 | |
| The assets that are supposed to go into the bypass trust remain part of the estate of Spouse 1 until funding. This is also true of the assets that are supposed to go to surviving spouse but have yet to be distributed. You can actually have a situation in which all of the assets are in the estate of Spouse 1 and the entry on Spouse 2's 706 is his/her respective share of Souse 1's estate on Schedule F. | |
| 13 February 2008 | |
| Would the funding obligation become a "debt" of the estate? | |
Phil Moody (talk|edits) said: | 13 February 2008 |
| What does the will say?
If the will is properly written, it may automatically fund the bypass trust. | |
| 13 February 2008 | |
| In a properly drawn will or trust there are options. It is rather foolish to to designate bypass trust assets perhaps years in advance. In this particular case, a properly drawn will allows the executor of Spouse 2's estate discretion to disclaim within nine months of spouse 1's death. | |
| 14 February 2008 | |
| JAD - we considered not taking the marital deduction from Spouse 1's estate, but the terms of the trust required it. It would have saved about $20k in estate taxes, but... oh well.
Jake - we've also considered claiming the $2 mill as a debt owed by Spouse 2; I was looking for some confirmation that someone's actually done that before. Either that, or we may just have the trustee execute a $2 million Promissory Note between the sub-trusts to late-fund the Bypass, and list it as any other Note Payable would be. Dennis - if I'm understanding you correctly, each asset listed on Spouse 2's 706 would be reduced by the amount previously claimed on Spouse 1's 706 (with adjustments for accrued interest)? I'll have to work the numbers to see if that pans out; I'm not sure if the marital deduction amount would mess things up, though... Thanks, everyone, for the suggestions. | |
| 14 February 2008 | |
| The estate of spouse 1 has a balance sheet as at date of Spouse 2's death.
Among the liabilities will be bypass trust and amount due spouse 2. Unless the bypass bequest is pecuniary, you are not necessarily dealing with $2 mil, and you will have to designate the assets going into the bypass trust. Schedule F entry, revaluing amount due spouse 2 as at date of death. | |
