Credit Shelter Trust

 

A Credit Shelter Trust is a trust designed to allow married couples to take full advantage of their federal estate tax exemption. Although a married person may leave an unlimited amount of assets to his or her spouse, free of estate taxes, the problem occurs when the second spouse dies with an estate worth more than their exempted amount, as the excess would be subject to estate tax, and the first spouse’s estate tax credit is wasted. The Credit Shelter Trust takes care of this problem by creating a trust upon the death of the first spouse with the deceased spouse’s share of the trust’s assets. The surviving spouse is the beneficiary of this trust, with the children often being the remainder beneficiaries. The trust is funded to the extent of the first spouse’s estate tax exemption. In effect, that amount is not subject to estate tax on the death of the first spouse, and the trust is able to take full advantage of the first spouse’s estate tax credit.