Barry Benton, Attorney at Law

There is a tool available to married couples to minimize or even eliminate the burden of estate tax: The use of a Credit Shelter Trust.

The Federal Estate Tax is a tax imposed upon the net estate of a decedent (the value of the estate after payment of all expenses, fees, debts of the decedent, charitable bequests, etc.), and is required to be paid within nine months of the date of death. For decedents passing in 2004 and 2005, federal estate taxes will be collected from individual net estates on all amounts which exceed $1.5 Million. Estates with a net value of less than $1.5 Million can apply the available Unified Credit allowed, and therefore owe no tax. However, there is a tool available to married couples to minimize or even eliminate the burden of estate tax: The use of a Credit Shelter Trust.

It is often the case with a married couple that the surviving spouse will inherit 100% of the deceased spouse’s estate. Married persons are allowed to inherit 100% of their spouse’s estate without bearing any federal tax burden through the use of the Marital Exemption. However, these inherited assets could increase the surviving spouse’s estate to a point where that survivor’s estate may now be subject to Federal Estate Tax. Including a provision in your estate plan to establish a Credit Shelter Trust allows your estate to “shelter” a portion of your estate from the federal estate tax that might be imposed on your surviving spouse’s estate. This is done by transferring that portion to be “sheltered” (up to a value available under the Unified Credit) to a separate Trust (the Credit Shelter Trust – or CST) for the benefit of the surviving spouse for life, instead of having that portion pass directly to the surviving spouse. The balance of your estate can pass to your surviving spouse under the Marital Deduction, and no taxes are due from the first estate.

Generally, the surviving spouse may be named as the Trustee of the CST, and will have the right to all income and interest from the trust property, as well as the right to invade principal if required. At the death of the surviving spouse for whom the CST has been established, the remaining assets in the CST are distributed according to the terms of the FIRST spouse’s plan, and are not included as part of the surviving spouse’s estate.

This sheltering tool is available to all married couples, but ONLY if it is specifically included as part of your estate plan.