What is a Credit Shelter or Bypass Trust?
A Credit Shelter or Bypass Trust, also referred to as a “Decedent’s Trust”, or “Trust B” (you will hear the term A-B Trust to describe this arrangement), is a means of using a Trust arrangement for a married couple to reduce estate taxes upon the surviving spouse’s death, by establishing this separate trust at the first spouse’s death. As described below, there is currently an estate tax imposed on each individual dying owning more than a specified amount of assets. For 2002, this amount is $1,000,000. When a married couple knows or anticipates that their combined assets may exceed this amount on the survivor’s death, establishing a Credit Shelter Trust should be considered. To show a very simple illustration of the idea, let’s assume a married couple has $1,900,000 in total assets, all of which is community property, so they essentially own it in equal shares. For the first example, the couple has simple Wills leaving all assets to the surviving spouse, and then to their children. The
A Credit Shelter or Bypass Trust, also referred to as a “Decedent’s Trust”, or “Trust B” (you will hear the term A-B Trust to describe this arrangement), is a means of using a Trust arrangement for a married couple to reduce estate taxes upon the surviving spouse’s death, by establishing this separate trust at the first spouse’s death. When a married couple knows or anticipates that their combined assets may exceed the exempt amount on the survivor’s death, establishing a Credit Shelter Trust should be considered.
