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Article 24
Benefits of Credit Shelter Trust
When the first spouse dies, up to $1,000,000 ($1,500,000 in 2004 and 2005) of
his or her assets may be placed in a Credit Shelter Trust estate tax free.
This sum is included in the first spouse's estate on death, but no tax is paid
because there is a credit equal to the tax on the first $1,000,000 (or as
increased) of the estate. Consequently, the entire $1,000,000 Trust is tax
free. If the balance of the estate goes to the surviving spouse, the whole
estate is tax free.
During the life of the surviving spouse:
- The surviving spouse can receive all of the Credit Shelter Trust
income;
- Children or grandchildren may receive income the survivor does not
need;
- The surviving spouse can be Trustee with some principal distribution
limitations;
- Principal may be distributed to the surviving spouse if necessary to
maintain her standard of living; and
- The decedent spouse can specify who are beneficiaries of this Trust on
the surviving spouse's death; beneficiaries are protected if the surviving
spouse should remarry.
On the death of the surviving spouse, the Credit Shelter Trust, and all its
appreciation, will pass to its remainder beneficiaries, free of tax on the
estate of surviving spouse. This is simplification of the Credit Shelter
Trust. The estate and gift tax rules are quite complex and this Trust must be
set up by either a Will of lifetime Trust prior to the first death.
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