ESTATE PLANNING, WILLS & TRUSTS

 

CREDIT SHELTER (BY-PASS) TRUSTS

 

Estate Planning with Credit Shelter Trusts

 

The Credit Shelter Trust, also referred to as a By-Pass Trust or the B Trust of an AB Trust Plan, creates the opportunity for a married couple to utilize two estate tax exemptions, rather than one.  For example, if the Last Will and Testament or Revocable Trust Agreement of the first spouse to die devises all the assets to the surviving spouse, the estate tax exemption of the first spouse is lost.  Alternatively, the assets can be transferred to a Credit Shelter Trust rather than outright to the surviving spouse.  With a standard Credit Shelter Trust in place, the income and principal of the trust assets are used for the medical care, education, support and maintenance in reasonable comfort of the surviving spouse during their lifetime.  Upon the death of the surviving spouse, the assets are transferred to the children or heirs without being included in the estate of the surviving spouse and without the imposition of an estate tax-- maximizing the total value of the assets transferred to the children or heirs.

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In 2020, the maximum estate tax exemption equivalent is $11,580,000 per person. Therefore, a married couple can currently transfer up to $23,160,000 to their children or heirs without paying estate tax with the use of a Credit Shelter Trust.  If a Credit Shelter Trust is not implemented, the total value of the assets that can be transferred to the children or heirs is generally limited to $11,400,000 before being subjected to an estate tax. 

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Furthermore, assets transferred to a surviving spouse upon the death of the first spouse are generally not subject to an estate tax pursuant to the Unlimited Marital Deduction.  The Unlimited Marital Deduction allows married individuals to transfer an restricted amount of assets between themselves during their lifetimes, and upon death without the imposition of a gift or estate tax.  Through proper estate planning, an estate tax is generally not imposed at the time of death of the first spouse, regardless of the size of the estate.  Even an estate valued at $1,000,000,000 (one billion dollars) would not be subject to an estate tax at the time of death of the first spouse if proper estate planning has been implemented.

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Please contact us today to discuss your immediate estate planning needs and long-term wealth preservation goals.