Bypass trust, often called a credit shelter or family trust, is an estate-planning trust designed to use the estate tax exemption of the first spouse to die and then bypass inclusion in the survivorTMs taxable estate. At the first death, assets equal to the available exemption are transferred into the trust for the benefit of the surviving spouse and descendants, while remaining assets may pass to the survivor or marital trusts. The bypass trust can provide income and limited principal access while keeping appreciation outside the surviving spouseTMs estate. It is commonly integrated with life insurance and other assets to minimize federal and state estate taxes for affluent couples.

Advisors discuss bypass trusts with estate-planning attorneys when working with married couples whose combined wealth may trigger estate taxes. They coordinate titling, beneficiary designations, and life insurance ownership so that the right assets flow into the bypass trust at the first death. In second-marriage and blended-family situations, bypass trusts can balance support for a surviving spouse with inheritance protection for children. Advisors also revisit existing bypass trust plans in light of changing exemption levels and portability rules. Understanding bypass trusts enables advisors to connect life insurance solutions with sophisticated tax and legacy strategies for high-net-worth families.