Terminating Irrevocable Bypass Trusts

Nowadays,trusts may be more trouble than they are worth. For those wishing to terminate an “irrevocable” trust, one commonsituation where this is possible involves bypass trusts.

Whenone spouse dies, assets equal to their exemption from federal estate and gifttaxes are typically placed into a bypass trust so the surviving spouse willhave access to the earnings or principal. When the surviving spouse dies, these assets bypass their estate and gostraight to children, essentially preserving the first spouse’s exemption.

Trusteesof a bypass trust can terminate the trust if it’s relatively small,uneconomical to maintain, or if it no longer serves a “material purpose” of thecreator.  The trustees can thendistribute the assets in kind to the surviving spouse.

See Ashlea Ebeling, How to Kill an Irrevocable Trust,Forbes, June 5, 2013.