The process of estate planning necessitates familiarity with a variety of key tools. One of these, historically used by many married couples, is called credit shelter trusts. These may be something that married couples and individuals currently doing estate planning want to look into.

Typically, the amount put in a credit shelter trust is am amount up to the total of the federal gift and estate tax exclusion. In 2014, that amount was $5.34 million. A couple may decide to put that full amount in the trust, or limit it to a lesser amount, in accordance with their financial resources and plans.

When in the trust, the money can remain there for the benefit of the surviving spouse if one spouse dies. The money is not subject to the estate tax, which allows the surviving spouse to count on getting the full amount.

The credit shelter trust protects the gift and estate tax credit status of the money that was accorded to it via the spouse who died. Without the credit shelter trust, that credit status can be lost, resulting in the money potentially being subject to taxation upon the eventual death of the surviving spouse.

Allowing a surviving spouse to benefit from the unused credit amount of a deceased spouse is called portability. It was originally introduced into law by the United States Congress in 2010. Originally, it was going to expire in 2012; however, Congress made a decision to renew it. They carried through on that decision by making portability permanent as part of the Taxpayer Relief Act of 2012.

This is an option with a lot of different ramifications. When looking into it, couples will want to consult with an experienced attorney, so they can get the most up-to-date advice possible.

Source: Palisades Hudson, “Income Tax Planning For Large Estates” Nov. 03, 2014