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What Is the Primary Purpose of a Credit Shelter Trust?
Understanding Credit Shelter Trusts for Estate Planning
The Role of Credit Shelter Trusts in Reducing Estate Taxes
“A credit shelter trust is used to help married couples with significant assets pass their estates after their deaths to children or other beneficiaries without incurring estate taxes.”
How a Credit Shelter Trust Functions for Married Couples
Credit shelter trusts are an estate planning tool for protecting assets from creditors, moving assets out of the estate to avoid probate and adding another layer of protection to a deceased spouse’s wishes. Only married couples can use credit shelter trusts, according to a recent article explaining it all: “How Does a Credit Shelter Trust Work?” from Yahoo! Finance.
Key Features and Benefits of Credit Shelter Trusts
Minimize federal estate taxes on assets in the estate
The main reason to use a credit shelter trust is to minimize federal estate taxes on assets in the estate. Also known as “wealth transfer taxes,” the federal estate tax has been around since 1916. Estate tax rates are very high. Wealth more than $1 million over the exemption rate is taxed at 40%. While today’s federal estate tax exemption is very high—$11.7 million for individuals and $23.4 million for couples—it is generally understood that these numbers are not likely to remain at these historic levels. The current estate tax exemption expires in 2025, unless Congress acts to reduce it earlier.
Estate tax law changes often both at the federal and the state level, so estate planning attorneys continually track these changes to protect their clients.
Irrevocable Trusts and Their Impact on Estates
The credit shelter trust, also known as a bypass trust, B trust, exemption trust or a family trust, is an irrevocable trust. As with all trusts, it is a contract between the trustor—the person who creates and funds the trust—and the trustee—the person in charge of the trust. The trust may contain any type of property, from cash, stocks, bonds and real estate to collectibles and artwork.
Ensuring the Decedent Spouse's Wishes Are Respected
The credit shelter trust becomes effective upon the death of one of the spouses. Assets in the trust are not included in the estate of the surviving spouse. Depending upon the terms of the trust, these assets may pass to beneficiaries after the first spouse passes without incurring any tax liabilities. Alternatively, as long as the surviving spouse lives, they may receive income from assets in the trust.
The credit shelter trust also protects the wishes of the decedent spouse. The trust document can be used to direct that some or all of the assets of the first spouse to die shall pass to the children of a first marriage or other specific beneficiaries.
Additional Advantages: Asset Protection and Privacy
The credit shelter trust also protects the wishes of the decedent spouse. The trust document can be used to direct that some or all of the assets of the first spouse to die shall pass to the children of a first marriage or other specific beneficiaries.
Navigating Estate Tax Law Changes with an Estate Planning Attorney
The Importance of Staying Informed on Tax Law Changes
Credit shelter trusts are one of many tools that can be used for estate planning. They have the added benefit of protecting assets from creditors and maintaining the family’s privacy, since assets in trust do not go through probate. Your estate planning attorney will know which kind of trust is best for your unique situation.
Tailoring Estate Planning Tools to Your Unique Situation
In conclusion, effective estate planning is crucial for preserving and protecting your family's assets and ensuring that your wishes are carried out after your passing. Credit shelter trusts are just one of the many tools available to help achieve your estate planning goals. As an experienced Kansas Estate Planning Attorney, Benjamin Long at Schlagel Long is dedicated to staying current with estate tax law changes and providing personalized solutions to meet your unique needs. Don't leave your estate planning to chance – call Benjamin Long today at (913) 359-8996 for a free consultation and take the first step towards securing your family's financial future.
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Attorney Benjamin Long
Benjamin Long is the founding attorney at Schlagel Long, LLC, an estate planning and probate law firm located in Olathe, Kansas. With extensive experience in advanced estate planning strategies, Ben specializes in assisting married couples with significant assets to minimize estate taxes and preserve wealth through sophisticated tools like credit shelter trusts (also known as bypass trusts or family trusts).
Recognizing the complexities and ever-changing landscape of federal and state estate tax laws, Ben helps families strategically position their assets to protect beneficiaries from unnecessary taxation, probate proceedings, and creditors. He carefully tailors credit shelter trusts to reflect each couple’s unique circumstances—ensuring their assets pass smoothly to intended beneficiaries, preserving family privacy, and safeguarding the wishes of the deceased spouse.
Benjamin earned his Juris Doctor from Washburn University School of Law, where he received a Certificate in Advocacy and was inducted into the prestigious Order of the Barristers. He holds a Bachelor of Science from Kansas State University. Recognized by Super Lawyers as a Rising Star and recipient of Martindale-Hubbell’s Client Distinction Award, Ben provides authoritative guidance and reliable counsel on complex estate planning matters, enabling clients to confidently protect their legacies.
Outside his practice, Ben teaches as adjunct faculty at Washburn Law School and coaches the Kansas State University Mock Trial Team. He resides in Olathe with his wife, Dr. Andra Long, and their two daughters.
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