Common Questions about Massachusetts Credit Shelter Trusts

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A credit shelter trust (CST) serves as a valuable strategy in estate planning. CSTs can safeguard individuals’ assets from estate taxes while easing the smooth and tax-advantaged transfer of wealth to their beneficiaries. This trust is also referred to as a bypass trust, a family trust, or an exemption trust.

The main purpose of a CST is to provide a tax-efficient way to transfer wealth from one generation to another.

What is a credit shelter trust (CST)?

In Massachusetts, estates under $1 Million are not subject to the state’s estate taxes. A credit shelter trust allows estates valued at over this threshold to be partially exempt from these types of taxes. This is done through a married couple’s estate tax marital deductions.

By creating credit shelter trusts, a married couple can effectively leverage their individual tax exemptions. CSTs work by having each spouse create individual trusts. 

There are no restrictions as to how much money can be held in these individual trusts, but any assets over the estate tax threshold will be taxed, unless these assets are placed in sub-trusts.

Credit shelter trusts protect assets up to $1 million. They are established when the first spouse passes away. This is known as “sheltering”. The surviving spouse has the option to serve as the Trustee of the deceased spouse’s trust and can utilize the assets held in the trust as required.

What is the difference between a marital trust and a credit shelter trust?

Is a credit shelter trust the same as a marital trust? Technically, no. 

A credit shelter trust can also be known as a marital trust. Some also refer to it as a bypass trust or an AB trust. While these names are usually used interchangeably, there are variations between all three types of trust. Speaking to a qualified estate planning attorney about the differences between these trusts and what options are best for you and your family is the best course of action.

Are Credit Shelter Trusts Revocable?

Credit Shelter Trusts are not always revocable. Initially, the trust is revocable, allowing the trust’s creator (the grantor) to modify its terms at any point during their lifetime. However, upon the first-spouse’s passing, the trust becomes irrevocable, and assets, typically representing the remaining estate tax exemption, are transferred to the trust that the living spouse will benefit from. 

The surviving spouse has the opportunity to receive income generated by the trust’s assets. Upon the subsequent death of the surviving spouse, the beneficiaries are entitled to receive the trust’s assets. This is also beneficial to them as they would not incur any estate taxes. By utilizing the trust, heirs are relieved of concerns regarding unused estate tax exemptions.

What type of trust is best for you and your family?

Deciding how to care for your loved ones, including your spouse and heirs, is no easy choice. We know it takes time and commitment to decide how to pass on your estate. A credit shelter trust might not be the best option for your and your family. 

There is more than one way to make sure your wishes and assets are handled properly. Give our Andover, Massachusetts trust and estate planning attorneys a call to see how we can help you.

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