A Maryland Bypass Trust, also known as a Credit Shelter Trust, is a type of estate planning tool used to reduce estate tax liability upon the death of a spouse.

In Maryland, each individual has a lifetime estate tax exemption amount that can be used to reduce or eliminate estate tax liability upon death. However, if this exemption amount is not fully used upon the first spouse’s death, the remaining amount is typically lost.

To avoid this loss, a Maryland Bypass Trust can be created. The trust is typically established in the first spouse’s will and is funded with assets up to the maximum amount of the deceased spouse’s unused lifetime estate tax exemption. These assets are then held in the trust for the benefit of the surviving spouse and/or other beneficiaries, such as children or grandchildren.

The surviving spouse can receive income from the trust and may have access to the principal under certain circumstances, but the assets are not considered part of the surviving spouse’s estate for estate tax purposes. This allows the assets in the trust to pass to the designated beneficiaries free of estate tax upon the surviving spouse’s death.

In summary, a Maryland Bypass Trust is an estate planning tool that can be used to preserve the unused lifetime estate tax exemption of the first spouse to die and ultimately reduce or eliminate estate tax liability upon the death of the surviving spouse.