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AB Credit Shelter Trust

Under current law, a person can pass any size estate to his or her U.S. citizen spouse without concern for a federal estate tax because of the unlimited marital deduction. IRC See. 2056

However, when the surviving spouse later dies and passes the combined estate to his or her heirs, there is only that spouse's unified credit to reduce the death tax. Therefore, the unified credit of the first spouse to die was wasted.

To preserve the unified credit of the first spouse to die, many couples use a credit shelter trust (also called an "exemption" or "by-pass" trust). When the first spouse dies, an amount equal to the unified credit (up to $675,000)1 is placed into the shelter trust. This trust is not taxed at that time nor at the later death of the surviving spouse, even though it may appreciate greatly in value.

The surviving spouse, however, can have access to the income from the trust for life and can use the principal if necessary for his or her health, education, support and maintenance.

Estates of married couples which are less than the applicable exclusion amount now (including life insurance), and are not likely to exceed these amounts in the future, will generally not benefit tax-wise from this type of trust.

Current Trust Estate $___________________

Trust A			Trust B
Survivor's Trust			Credit Shelter Trust
(All assets not in trust B)			(Up to the applicable exclusion amount)
-Remains Revocable-			-Becomes Irrevocable-
Survivor Gets			Survivor Can Have
*All income			*All income
*All principal			*Principal for health, support and maintenance
*Unlimited power to appoint principal to anyone			*Limited power to appoint principal among heirs

	Children's Trust
	*Assets can be held in this trust while children are growing in maturity.
	*The Trustee manages estate and distributes it to children at specified ages.

 

 

 

For 2000 and 2001, $675,000 is the amount of assets protected by an individual's unified credit. The amount of assets protected by the unified credit is termed the "applicable exclusion amount." This amount will change each year, as follows: $700,000 in 2002 and 2003; $850,000 in 2004; $950,000 in 2005; $1,000,000 in 2006 or thereafter. The amount which could be placed in the trust may be higher if the decedent held any "qualified family-owned business interest" property.