A credit shelter trust (CST) is an irrevocable trust funded when the first spouse dies. Assets up to the deceased spouse’s estate tax exemption go into the trust instead of passing outright to the surviving spouse.
- The surviving spouse may receive income and sometimes limited principal (e.g., for health, education, maintenance).
- Those assets are not included in the surviving spouse’s taxable estate.
- When the surviving spouse dies, the trust passes to the final beneficiaries estate‑tax‑free.
Benefits
1. Estate Tax Minimization
Each spouse has a federal estate tax exemption. A CST ensures the first spouse’s exemption is fully used rather than wasted.
2. Asset Protection
Assets in the CST are protected from:
- Creditors of the surviving spouse
- Claims from a new spouse
- Unintended diversion in blended families
3. Control Over Distribution
The deceased spouse can lock in where their share ultimately goes—children from a prior marriage, grandchildren, etc.
4. Sheltering Future Growth
Appreciation on CST assets is also excluded from the surviving spouse’s estate.
Warning!
If you do it wrong, your assets go through probate before going into CST.
Abies Law Firm 