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New York & North Carolina

What Is a Credit Shelter Trust?


Trusts Are Important Estate Planning Tools

In a previous blog post “5 Differences Between Revocable and Irrevocable Trusts” we explained that trust is a document that specifies the rules you want to be followed for property held in a trust for your beneficiaries.

Irrevocable trusts can be attractive legal vehicles for the affluent when leaving assets to their children. Property in an irrevocable trust is not included in calculations of the total value of the property at the time of death and is generally protected from creditors and other claimants. One type of irrevocable trust designed to reduce and sometimes completely avoid estate taxes is the Credit Shelter Trust, also known as an AB trust or Bypass trust.

Credit Shelter Trust

When a married individual dies, a credit shelter trust can be created. The credit shelter trust will be funded according to the trust agreement, with either their entire estate or just a part of it. Once created, the trust will effectively transfer the deceased’s assets to the surviving spouse. However, this transfer does not increase the surviving spouse’s taxable estate because the surviving spouse does not actually take control of the trust’s assets, and the trust is managed by a designated trustee. The surviving spouse does maintain specific rights to the assets in the trust for the remainder of their life. When the surviving spouse dies, the assets in the trust are then transferred to the remaining beneficiaries without any imposed taxes.

Do I Need an Attorney?

The creation and administration of complex estate plans require a high level of analysis and detail-oriented focus on the law, accounting, and asset valuations.  Our experienced approach, as not only attorneys but as CPAs, focuses on tax minimization, wealth preservation, and achieving the charitable goals of each client. Clients can be assured their plan is created properly and administered in accordance with their wishes.