Which means it has suddenly become a far more effective strategy to start For the past several decades, the bypass trust has been a staple estate planning strategy to minimize estate taxes. To avoid crowding all of a couple’s assets into a single person’s name after the death of the first spouse – which could potentially push him/her over the estate tax exemption amount – the spouse who passes away doesn’t actually leave his/her assets to the surviving spouse.Instead, the assets go to a “bypass trust” that can be used for the surviving spouse’s benefit, but with enough restrictions that the assets in the trust “bypass” the surviving spouse’s estate (i.e., are not included in his/her estate and therefore are not exposed to estate taxes in the future).If the trustee disposes of assets, any gains on disposal are liable to capital gains tax and the tax is payable as an expense in the bankruptcy, in due order of priority [note 4].
September 2006 77.53 Capital gains and losses Capital gains tax was introduced with effect from 06 April 1965 to tax the capital gains made by individuals, personal representatives and trustees.
When an asset is disposed of, the profit or loss on disposal is a capital gain or loss.
If the donor dies within seven years of the gift, if the taxable threshold has been exceeded inheritance tax will be payable on the gift.
77.58 Taxable threshold for inheritance tax Inheritance tax is not chargeable where the total estate of the deceased person (including potentially exempt lifetime transfers and chargeable lifetime transfers) is below a certain amount.
Thus, whatever the surviving spouse doesn’t actually spend from the bypass trust can flow estate-tax-free to the future beneficiaries.
While the bypass trust can be very efficient to minimize a family’s estate tax exposure, though, a significant caveat of the strategy is that it’s tax purposes.Any corporation tax due on chargeable gains made in the realisation of an asset is payable as an expense in the liquidation [note 2].See also paragraph 77.15 77.55 Capital gains in a bankruptcy Although assets vest in the trustee on appointment, this does not constitute a disposal for capital gains tax purposes [note 3].A gain or loss is calculated on each asset disposed of, and then totaled together to give the net gain or loss for the year.A company's capital gains are included in its profit figure and are charged to corporation tax.A running total is kept of chargeable lifetime transfers and inheritance tax is not payable either on lifetime gifts or wealth at death below a certain threshold.