Bypass Trust (Credit Shelter Trust) Attorney in Austin, TX

Bypass Trusts for Austin Married Couples

A bypass trust, also called a credit shelter trust, family trust or “B trust,” is the classic tool for making sure a married couple uses both spouses’ federal estate tax exemptions. When the first spouse dies, part of their estate goes into a trust instead of passing outright to the survivor. The survivor can still benefit from it, but the trust “bypasses” the survivor’s taxable estate, along with everything it grows into.

Reviewed by Turner Henington, attorney and former KPMG tax accountant, Texas Bar No. 24148206 · Updated November 2026

How a Bypass Trust Works

1. At the first death, the plan directs an amount of the deceased spouse’s property, often up to their available exemption, into the bypass trust. In Texas, this usually comes from the deceased spouse’s half of the community property and their separate property.
2. During the survivor’s life, the trust can pay the survivor income and, if needed, principal for health, education, maintenance and support. That “ascertainable standard” lets the survivor even serve as trustee without the trust being taxed in their estate (26 U.S.C. § 2041(b)(1)(A)).
3. At the survivor’s death, what is left passes to the children or other beneficiaries the first spouse chose, free of estate tax no matter how much it has grown.

The rest of the first spouse’s estate usually passes to the survivor outright or to a marital trust, where it qualifies for the unlimited marital deduction.

Bypass Trust vs. Portability

Since 2011, a surviving spouse can keep the deceased spouse’s unused exemption through portability, by filing a Form 706 (26 U.S.C. § 2010(c)). That made bypass trusts optional for many couples, but they still do things portability can’t:

See portability in Texas and the community property double step-up, which is why the basis trade-off matters so much for Texas couples.

Flexible Designs: Disclaimer Trusts and Clayton QTIPs

Many plans now let the family decide after the first death whether to use a bypass trust, based on the size of the estate and the law at that time:

• Disclaimer trust. Everything passes to the survivor, but the survivor can disclaim part of it within nine months of the death, and the disclaimed property falls into a bypass trust (26 U.S.C. § 2518).
• Clayton QTIP. Property goes to a trust that qualifies as a QTIP trust only to the extent the executor elects. Whatever is not elected becomes a bypass trust. The Fifth Circuit, which covers Texas, approved this design in Estate of Clayton v. Commissioner, 976 F.2d 1486 (5th Cir. 1992).

Who Should Consider a Bypass Trust?

• Couples whose combined estate is near or above $15 million, or could be after years of growth
• Blended families who want each spouse’s share to reach their own children
• Couples who want to use both spouses’ GST exemptions for grandchildren or dynasty trusts
• Surviving spouses who may remarry

Most couples well below the exemption are better served by portability or a disclaimer trust, because of the step-up in basis.

Why Work With Us

• Tax background. Turner Henington is a former KPMG tax accountant, so we design trusts with both the estate tax and your family’s income tax in mind.
• We work with your CPA and advisor. Marital and bypass trust decisions often happen after a death, on the estate tax return, so we coordinate with the people who prepare it.
• Flat-fee quotes. After a free consultation, you get a written flat-fee quote before any work starts.
• We also handle the first death. Funding these trusts and making the elections is part of settling the estate, and we handle both the planning and the administration.

Talk to an Estate Tax Planning Attorney

Call (512) 737-8404, book a free consultation, or send us a message below.

What Our Clients Say

Bypass Trust FAQ

What is the difference between a bypass trust and a credit shelter trust?

None. Bypass trust, credit shelter trust, family trust and “B trust” are different names for the same thing: a trust funded at the first death that uses the deceased spouse’s estate tax exemption.

Does a bypass trust still make sense with portability?

Sometimes. Portability is simpler and keeps the step-up in basis at the second death, but a bypass trust also shelters growth, uses the first spouse’s GST exemption, protects the children’s share and survives a remarriage.

Can the surviving spouse be trustee of the bypass trust?

Yes, if distributions to the survivor are limited to health, education, maintenance and support. That standard keeps the trust out of the survivor’s taxable estate.

Do bypass trust assets get a step-up in basis when the surviving spouse dies?

Generally no. Because the bypass trust is not included in the survivor’s estate, its assets keep their basis from the first death. That is the main trade-off.

Can we decide later whether to use a bypass trust?

Yes. A disclaimer trust or a Clayton QTIP lets the family decide after the first death, based on the estate’s size and the tax law at that time.

Other Estate Tax Planning Tools

• Estate tax planning in Austin: overview
• Marital trust
• QTIP trust
• Reverse QTIP election
• Portability: keeping a deceased spouse’s unused exemption
• The Texas community property double step-up
• Lifetime gifting in Texas

Sources

• 26 U.S.C. § 2010 (unified credit and portability)
• 26 U.S.C. § 2041 (powers of appointment; ascertainable standard)
• 26 U.S.C. § 2518 (qualified disclaimers)
• IRS: What’s new, estate and gift tax (2026 exemption)
• Estate of Clayton v. Commissioner, 976 F.2d 1486 (5th Cir. 1992)

This page is general information, not tax or legal advice for your situation. Reading it does not create an attorney-client relationship.