[WSBAPT] Pros & cons of leaving 1/2 of the assets to the kids at 1st death instead of setting up a bypass trust

[Jon Fritzler]

Clients with a substantial estate (more than 3 million but less than the federal estate tax exemption) came to me with a trust that calls for a bypass trust to be funded at the first death with the largest amount that can pass free of federal estate tax.  They say they want to amend the trust to give one-half of their assets to their children (the children are both of theirs) at the first death and that the other half of the assets will be more than enough for the surviving spouse to live on. The most obvious drawback is that the surviving spouse's expenses could go up and the surviving spouse won't be able to maintain his or her standard of living on half the assets. Are there other potential pitfalls I should warn them about?

I know that when a decedent's interest in community property passes to the surviving spouse, the surviving spouse receives a stepped-up basis in the whole of the community property.  Would the surviving spouse still receive a step-up in basis on his or her share of the community property if the decedent's share of the community property goes to the children instead of to the surviving spouse?

Jon M. Fritzler
Attorney at Law

11015 NE Fourth Plain Blvd., Suite D

Vancouver, WA 98662
Tel. 360.818.4431
Eml fritzlerlaw at outlook.com<mailto:fritzlerlaw at outlook.com>

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