Definition - What does Bypass Trust mean?
A bypass trust is an estate planning tool designed to increase the amount of assets that couples can pass on to their beneficiaries after their deaths. Bypass trusts allow this by being taxed significantly less than normal assets.
A bypass trust can be established as an alternative to a life insurance trust.
Insuranceopedia explains Bypass Trust
Bypass trusts are created by couples, and the trust splits into two trusts when one partner dies. One of these trusts is entirely exempt from taxation. For people with large estates, these tax savings could amount to hundreds of thousands or even millions of dollars.
Bypass trusts are often prepared by lawyers, since they are not valid unless properly prepared.