The phrase "credit shelter trust" trust refers to a trust that is designed to make maximum use of the unified credit for estate taxes -- which is also known as the lifetime exemption. Each individual is allowed a once-in-a-lifetime exemption from estate and gift taxes. However, the exemption is computed as a credit against the estate and gift tax that is sufficient to offset the tax on an estate of a specified size. A credit shelter trust is designed to make maximum use of the unified credit for estate taxes. Each individual is allowed a once-in-a-lifetime credit from estate and gift taxes. For 2009 the exempt amount is 3.5 million. By the year 2010 the inheritance tax is eliminated but if congress does not make the elimination permanent in the following year the tax will return and the exempt amount will be $1.0 million. Since it is any one's guess what congress will do, planning to maximize the credit is still the smartest estate plan for married couples to utilize.
The parties must split there assets so that roughly 1/2 half of the assets are held by Spouse One and 1/2 of the assets are held by Spouse Two. Each spouse then provides by will or living trust that upon their death the amount of their assets up to the exemption amount are to be held in a trust known as the credit shelter trust. The trust typically provides that the surviving spouse has entitlement to the income and to the principal provided that there are "ascertainable standards" established in accordance with IRS law for the trustee to distribute principal to the surviving spouse.
When the first spouse dies the credit shelter trust is exempt from tax. When the surviving spouse dies the surviving spouse's estate up to the exempt amount is also exempt from tax. This way the parties can exempt twice as much of their combined estates from taxation and save their loved ones substantial tax savings without losing beneficial use and enjoyment of their assets during their lifetimes.
The Carrollton Married Person's Will for the State of Texas with Children With a Credit Shelter Trust for Spouse and a Trust for Children — Marital Trust is a comprehensive legal document that allows married individuals residing in Carrollton, Texas, to establish their estate plan while ensuring the financial security of their spouse and children. This type of will is designed with specific provisions to protect the assets and interests of both the surviving spouse and the children. The primary purpose of this will is to preserve and distribute the assets of the deceased married person according to their wishes, while also minimizing potential tax liabilities by incorporating a Credit Shelter Trust for the spouse and a separate trust for the children. By setting up these different types of trusts, individuals can ensure that their assets are efficiently managed and allocated to provide for the needs of both the surviving spouse and the children. In more detail, the Credit Shelter Trust (also known as a bypass or family trust) allows the married person to transfer a certain amount of assets (up to the estate tax exemption limit) to the trust upon their death. These funds are then protected from estate taxes and are available for the benefit of the surviving spouse during their lifetime. However, upon the spouse's death, the remaining assets in the trust will pass directly to the designated beneficiaries, typically the children, without being subject to additional estate taxes. Additionally, the Marital Trust, also known as a TIP (Qualified Terminable Interest Property) Trust, ensures financial security for the surviving spouse. Here, a specific portion of the estate is protected and transferred to the trust, with income generated from that portion distributed to the surviving spouse throughout their lifetime. This trust ensures that the surviving spouse is provided for while maintaining control over the ultimate disposition of the assets, which usually pass to the children upon their death. It is important to note that there may be variations or modifications to the Carrollton Married Person's Will for the State of Texas with Children With a Credit Shelter Trust for Spouse and a Trust for Children — Marital Trust, depending on an individual's specific circumstances, desired asset allocation, and estate planning goals. Therefore, consulting with an experienced attorney is highly recommended tailoring and customize the will to meet individual needs while adhering to the applicable state laws and regulations.
