If you are married and want to ensure your spouse lives in financial comfort after you pass away, it is important that you begin estate planning early. If you and your spouse own significant assets, you may want to include a bypass trust as part of your estate plan.

A bypass trust is one-half of a two-part trust and offers considerable benefits. SmartAsset explains how a bypass trust works and when you may want to use one.

The ins and outs of a bypass trust

A bypass trust is a legal arrangement that allows you and your spouse to avoid estate taxes on certain assets when one of you passes away. Otherwise known as an “AB trust,” it is the “B” part of a more comprehensive estate plan.

When you or your spouse passes away, your assets will go into either the “A” or “B” portion of the trust. The “A” trust is the marital trust. This trust is revocable and belongs to the surviving spouse. The surviving spouse has complete control over the assets within it and can sell, give away or use them as he or she sees fit. The creator of the trust can also change the terms as situations dictate.

Any remaining assets go into the “B” trust. The “B” trust — otherwise known as the bypass or family trust — is irrevocable. Once you or your spouse create this trust, you cannot change its terms. The surviving spouse does not own any assets with the B trust. However, he or she can access the assets throughout his or her lifetime and receive income from it. The trust creator may name either the surviving spouse or another person as the trustee, who is then responsible for distributing assets appropriately into the A and B trusts and for managing both.

The benefits of using a bypass trust

The main reason you may want to use a bypass trust is to avoid federal and state estate taxes. Assets in both the A and B portions are exempt from estate taxes so long as the assets’ total value does not exceed the annual exemption limits. As of 2019, the exemption limits were $11.4 million for individuals and $22.8 million for married couples. Because the marital and family trusts are separate, your annual exemption limits basically double, granting you and your spouse a limit of more than $45 million.

Another benefit of a bypass trust is that it allows the surviving spouse to avoid probate. Any assets within either the A or B trust are not subject to probate.