Credit Shelter Trusts: Do I Need One?

Credit shelter trusts have a history of popular use with married couples because at its basis, this trust protects assets up to the federal estate tax and gift tax exclusion in order to be taxed under the first spouse’s estate. When that spouse passes away, the assets stay in the trust in order to benefit the surviving spouse. When the second spouse passes away, the assets are not taxed because they are protected under the unlimited marital deduction. Without the use of this credit shelter trust, the gift and estate tax credits for the first spouse wouldn’t benefit the other spouse, leaving the second spouse’s assets subject to higher tax on death.

This concept is known as portability and it was made permanent through the American Taxpayer Relief Act of 2012. For those married couples with smaller or medium sized estates, credit shelter trusts can still be a valuable asset.