Many clients and even other professionals are unaware that an irrevocable bypass trust, or funded B trusts, can be corrected to prevent higher ordinary income tax during the surviving spouse’s lifetime and higher capital gains tax upon the surviving spouse’s death. To understand the issue, a little history and background are needed.
First, every U.S. citizen is entitled to a lifetime credit against estate tax. This works like a very large standard deduction on an income tax return. Net estate values below this amount are not subject to estate tax.
