| Credit Shelter, Credit Shmelter trust…read on:
READER QUESTION:
You mentioned in your previous two Listen to Lawrence Letters (September 23rd, Issue 380, and September 25th, Issue 381) about putting assets in a Credit Shelter Trust for the benefit of the surviving spouse. This “shelters” the money from estate tax so that the surviving spouse can use their own exemption as well. I understand this. What I don’t understand is to what extent the surviving spouse can get the money in the credit shelter trust? Thank you.
MY RESPONSE:
My readers should understand that this type of trust is commonly used only for those married clients who have assets that exceed the estate tax exemption, currently set at $7.16 million.
The CREDIT SHELTER (a/k/a BYPASS) TRUST is designed to benefit the surviving spouse (funded by the first spouse to die) without the surviving spouse owning (and being taxed on) the money at the second death.
First, the income: The trust is designed to either pay out all the income to the surviving spouse or give the trustee discretion to pay out part or all of the income to the surviving spouse.
Second, the principal: The trust is designed to give the trustee discretion to pay out some or all of the principal of the trust in order to provide enough money for the surviving spouse to maintain their “accustomed manner of living.” This standard basically allows the trustee to maintain the lifestyle of the surviving spouse, so the standard is more geared to ask the question, what does he/she need vs. simply, what does he/she want? Having said this, we also commonly give the surviving spouse the annual right to pull out of the trust up to 5% of the trust principal without the consent of the trustee.
I hope this helps! |
