Effect of Portability Clause on Bypass Trusts

With the new portability clause, attorneys are debating whether bypass trusts should still be used. Some argue that they should still be used because portability isn’t automatic and executors must file estate tax returns to receive the benefit, portability doesn’t apply to the GST tax, portability may leave us in 2013, and leaving your assets outright to your spouse provides no asset protection.

The other side argues that bypass trusts shouldn’t still be used because portability is here to stay, and having a bypass trust could be inconvenient for your spouse if funding the trust leaves nothing outside the trust. These lawyers are now promoting a tool they used to belittle: disclaimer trusts. You leave everything outright to your spouse, giving your spouse the option to disclaim the inheritance into a bypass trust. This allows your spouse to review finances, federal estate taxes, and state estate taxes before making a decision. However, disclaimers can be tricky, and you have to really trust your spouse to disclaim the property when appropriate.

“Now the new game in estate planning is an old-fashioned form of trust—between spouses.”

Deborah L. Jacobs, Married, With Assets, Forbes, Jan. 26, 2011.