Every asset is liable to taxes. Assets with higher values are liable to bigger taxes and vice versa. People with larger assets need to be more careful so that they can  For couples with multi-million dollar estates, it is important to have a credit shelter trust in order to protect their inheritance from taxes. Through the use of a credit shelter multiple taxes can be exempt. It takes complete advantage of state and federal estate tax exemptions.

Credit Shelter Trust Example

In order to better understand, what is a credit shelter trust? Consider the example of Jack and Jill. They have been married for a long time and each own a multi-million dollar estate. The total worth of Jill’s real estate is $3 million and the worth of Jack’s real estate is $5 million dollars. Both of these are exempt from taxes with their current worth because the state implements taxes if the worth increases from $5 million.

If Jill passes away before Jack, all the real estate of Jill is passed down to Jack. Now the total net worth of Jack’s assets becomes around $8 million. This exceeds the tax bracket of $5.3 million enforcing a large amount of tax deduction on the estates. This becomes a huge loss in the wealth of Jack. In order to prevent this from happening, Jack and Jill should have opted for credit shelter trust (CST).

How Credit Shelter Trust Works?

It is mostly applicable for couples with a large estate worth multi-million dollars. When one of the spouse passes away, their assets are placed into the credit-shelter trust. If the available exclusion is trespassed by the current assets, then the extra assets can go into another trust which qualifies as marital deduction. If that is not an option, then it can directly go to the living spouse. It is important to remember that anything placed in the credit shelter cannot be changed or altered in the future. This further exempts taxation from the assets.

The credit shelter trust is controlled by a trustee and provide an income to the living spouse which increases their financial security.

Furthermore, in order to make any changes, it is important to have a trustee in place. This trustee must be a neutral party with no interests in the trust whatsoever. The role of this trustee is to go through the finances of the surviving spouse and generate an income to ensure that all basic and genuine needs of the surviving spouse are met easily. 

Credit shelter trusts provide an income to the living spouse which increases their financial security. Moreover, the children know that their parent’s estate and assets are available to them for difficult times and any step-parent cannot have access to it. Similarly, they will have no right on the asset, money, or estate.


There are many benefits of incorporating a credit shelter trust. Some of them are as follows:

1)  The needs of blended families can be catered to through the use of credit shelter trust.

2)  Through its, assets can be protected from the creditors.

3)  If the surviving spouse marries again but gets divorced, through the presence of credit shelter trust, their estate can remain safe in the divorcing process.

4)  Through credit shelter trust, the generation skipping exemption can be applied. GST exemption will prevent the children estate to be taxable as well.

5)  Due to strict no change policy in the credit shelter trust, the estate remains safe for the spouse’s children and their children in the future. 


Along with many perks that are offered by the credit shelter trust, there are some downsides to it as well.

1)      There is no step-up in the place of the living spouse. This means that if the surviving spouse passes away, there is no step up in the place.

2)      Since the credit shelter trust is a separate entity and pays different tax, the tax returns are filed separately for them.


Even though it is generally believed that the beneficiary can be only immediate family members or spouses. But it is not necessary. Anyone can become a beneficiary to the shelter trust.


Credit shelter trusts are a reliable way to ensure that the deserving people get their share in the estate. It further protects the estates from being overtaxed or wrongly taxed. It provides a safety net for the future generations of the family preventing them from losing their assets or at least a big chunk of their assets in the form of taxes. Moreover, the assets are kept safe in case of a blended family as well thus keeping the rights of everyone safe.


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