Creating a ‘bypass’ trust isn’t necessary for most as law changed

The information in this column is intended to provide a general understanding of the law, not as legal advice. Readers with legal problems, including those whose questions are addressed here, should consult attorneys for advice on their particular circumstances.

Q: You recently wrote that trusts are no longer necessary. Everything I own is in my trust. To remove the properties would involve attorneys in two states, substantial paperwork and a fair amount of expense. And my estate would have to go through probate. Would it be worth doing?

A: You have a revocable trust, and that type of trust is just fine to have, assuming your particular circumstances warrant the need for one.

The type of trust I wrote about is commonly referred to as a “bypass” trust. This type of trust has been used for decades by married couples as a way to save on estate taxes. But now, with the exemption from estate taxes at $5,450,000 per person, most married couples simply don’t need a bypass trust to save on estate taxes.

Plus, under a relatively new law, a surviving spouse can now claim the unused exemption from a deceased spouse, thereby potentially doubling the survivor’s exemption to $10,900,000. Thus the need for married couples to create a bypass trust is even less.

Q: On a Transfer on Death Deed with two primary beneficiaries and two secondary beneficiaries, is it possible to specify the beneficiaries so that if one primary beneficiary predeceases the owner, the share of that deceased beneficiary will pass to one of the two secondary beneficiaries?

A: The sample form that was written by the Texas Legislature does not contemplate a distribution scheme that is that complicated. However, the statute does not prohibit you from preparing a Transfer on Death Deed that does contain that type of contingency planning.

The main problem is that it is difficult to clearly state what you want to have happen.

The idea behind the new Transfer on Death Deed is to make things simple for the public so that they don’t need to hire a lawyer. But if you attempt to create a complicated distribution plan yourself, you might inadvertently be creating far more legal expense for your beneficiaries if they get into a fight over what you actually intended.

In fact, your question originally read: “… so that if one primary beneficiary predeceases the owner, the property would pass to the surviving primary beneficiary and the secondary beneficiary designated to follow the deceased primary?”

That language is a bit unclear, and I edited it to say what I thought you were asking. But you might have also wanted the deceased primary beneficiary’s share to pass to both secondary beneficiaries. Clearly, what you don’t want is for several beneficiaries to get into a lawsuit after you have died.

You should probably hire an attorney to prepare the Transfer on Death Deed for you.