Bypass trusts are not as popular as they were at one time but can still work under certain circumstances.
The “bypass” trust has gone out of favor as a result of federal estate law changes but can still work for you, according to the Poughkeepsie Journal in "Bypass trust works better for many families."
Basically, the bypass trust was set up to offset the complicated process for a married couple to get the most out of the estate tax exemption. When one spouse passed away his or her estate tax exemption could be useless if all of the assets went to the other spouse directly. When the second spouse passed away all of the couple's assets would be considered part of his or her estate and the individual estate tax exemption would be applied.
Essentially, the surviving spouse was bypassed in the estate plan.
The relatively new federal law of spousal “portability” changed this and made bypass trusts less necessary. Now, if the paperwork is properly filled out, a surviving spouse can elect to carry over the deceased spouse's estate tax exemption and use it along with his or her own later.
This move essentially doubles the estate tax exemption.
Many states have estate taxes of their own and they do not all allow spousal portability. Thus, in some states a bypass trust is still necessary to take full advantage of estate tax exemptions. A bypass trust can also be used to protect against a surviving spouse getting remarried and having all of the couple's property eventually ending up in the new spouse's family. They can also be used as a great way to include other family members in the estate plan, especially grandchildren.
If all this sounds a bit confusing, do not worry. That is why there are estate planning attorneys.
Reference: Poughkeepsie Journal (Nov. 4, 2016) "Bypass trust works better for many families."