Many traditional estate plans say that the federal estate tax exemption amount will be left to a so-called "bypass" trust. Typically, the trust language limits the surviving spouse to the trust income and the right to invade principal for health, maintenance and support. This approach can be ideal for estate tax shelter.
Unfortunately, this approach may not be ideal for the surviving spouse. Under current law, the federal estate tax exemption is $5 million. Therefore, when an estate plan has traditional language, most or all of the decedent’s assets will pass to the bypass trust. The surviving spouse may have a difficult time getting adequate assets from the bypass trust–and may not be able to get enough distributions from the trust to provide a comfortable lifestyle.
With this in mind, you should review your estate plan now. If your plan includes a bypass trust and that trust may be over-funded, draw up a new plan. You might want to cap the amount going into the bypass trust. Another strategy is to leave your assets to your spouse, who will have the ability to disclaim unwanted assets to a bypass trust.