Understanding Credit Shelter Trusts for Estate Planning
The Role of Credit Shelter Trusts in Reducing Estate Taxes
How a Credit Shelter Trust Functions for Married Couples
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
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
Navigating Estate Tax Law Changes with an Estate Planning Attorney
The Importance of Staying Informed on Tax Law Changes
Tailoring Estate Planning Tools to Your Unique Situation
How To Manage a Will and Trust
What Is the Primary Purpose of a Credit Shelter Trust?
Funding a Trust With Life Insurance
What Exactly Does an Executor Do?
When Should You Have ‘the Talk’ With Your Kids?
Does Your Estate Plan Need a Will or a Trust or Both?
Top 10 Reasons To Get Going on an Estate Plan