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Financial Planning
Strategies  Credit Shelter or By Pass
Trusts
A credit shelter or
by pass trust can help both you and your spouse take advantage of
the unified credit and transfer up to $ 1.2 million in assets
to your children or other heirs free of federal estate tax. To
underscore the value of this planning strategy, see the simplified
example below. It shows what can happen when both
spouse's unified credits aren't used.
Example When
Frank died, he had a taxable estate of $ 1 million which he
left to his wife Helen. His estate paid no federal
estate tax because of the unlimited marital deduction.
Frank's unified credit wasn't used. When Helen
died, her taxable estate also was worth $ 1 million.
Because Helen hadn't married again, the marital deduction was
unavailable to her estate. Helen's estate claimed a unified
credit, but this credit effectively exempted only $
600,000 of her property from tax. Helen's estate was
subject to an estate tax of more than $ 150,000. Using a
credit shelter trust could have eliminated the tax on
Helen's estate.
One way to make the
most of your and your spouse's unified credits is to
arrange for your estate to be divided into two parts at the
time of you death. One part would pass outright to your
spouse. The second part would be placed in at trust
created by your Will.
This trust can pay your
surviving spouse a lifetime income and then benefit your
children or other named beneficiaries after your spouses
death. You can even give your spouse limited power to
withdraw trust assets. Some people limit the amount in
the credit shelter to $ 600,000 so that any tax on the trust
will be offset by the unified credit.
At your death, your unified
credit will be applied against the assets in the credit
shelter trust. If those assets are worth $ 600,000 or
less, no estate tax will be due. And no tax is due on
the assets passing to your spouse, either, because of the
unlimited marital deduction. At your spouse's death, the
credit shelter trust assets will pass to your children or
other trust beneficiaries. The assets won't be taxed as
part of your spouse's estate. The assets that passed to
your spouse under the unlimited marital deduction will be
included in your spouse's estate. However, your spouse's
unified credit will be available to off set tax up to $
600,000 of those assets.
We welcome the
opportunity to help you reach your goals.
Other Financial Planning Strategies
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Two Trust Estate Plan |
Minor Trust Gifts |
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QTIP Trusts |
Crummey Powers |
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Life Insurance |
Personal Residence Trusts |
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Lifetime Gifts |
Charitable Gifts |
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Annual Gift Tax Exclusion |
Charitable Remainder Trusts |
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Medical & Tuition Exclusions |
Charitable Lead Trusts |
For more information please feel free
to browse around our web site. We are always happy to answer
any questions, or to schedule a consultation:
Email Us or call us at 847-215-8630.
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