Bypass trust

In the United States, a bypass trust is an irrevocable trust into which the settlor deposits assets and which is designed to pay trust income and principal to the settlor's spouse for the duration of the spouse's life. The transfer of the settlor's assets to the bypass trust for the benefit of the spouse is a tax-free transfer under the currently unlimited Marital Deduction. At the settlor's death, the assets in the bypass trust are not included in the settlor's estate, effectively reducing the total value of the estate and therefore potentially limiting the estate taxes owed at the settlor's death.