Today’s estate and tax laws allow married couples to pass substantial amounts of assets to their beneficiaries without triggering an estate tax. Just a few years ago, the amount that could be passed without being subject to tax was much lower. Married couples also needed special planning in place in order to preserve the tax exemption benefits available to both individuals. As a result, many married couples created estate plans that involved credit shelter trusts. Today, however, there are fewer tax reasons for having a credit shelter trust.
Regardless of the estate tax, there are non-tax related reasons for keeping your credit shelter trust. These reasons include:
- Protection from creditors. If assets are left to the surviving spouse outright, they are reachable by the creditors of that spouse. This can be true even in some cases where the assets are held in a living trust for the benefit of the surviving spouse. Assets kept in a credit shelter trust are typically protected from creditors.
- Controlling the assets after the first spouse dies. If there is concern as to what the surviving spouse will do with the trust assets after the first spouse dies, a credit shelter trust can be useful. Under the terms of the trust, it can be set up so that the surviving spouse receives trust income as well as trust principal on an as-needed basis, as determined by the trustee.
- Controlling the assets after the second spouse dies. Similarly, credit shelter trusts can control what happens after both spouses have passed away.
- Avoiding probate administration upon the second spouse’s death. Assets held in trust generally are not subject to probate proceedings.
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