A credit shelter trust (CST) also known as a bypass trust enables a married investor to be free from paying estate taxes in the event he or she gives his assets to his children or grandchildren. This, however, should be executed with the help of a legal counsel or lawyer to make sure that the right procedure is followed and that all the wishes of the owner are put into writing.
Ensuring a credit shelter trust is important particularly for people who have huge assets and whose net worth has increased so much without them knowing it. It is important, however, that the beneficiaries are named in the trust. They can include the spouse and the couple’s children if any. By initiating this trust, the owners of the assets are helping their heirs to be free from estate tax obligations through a lifetime exemption.
In the case of a husband who dies leaving properties behind, the surviving spouse is not obligated to pay federal estate tax. It is because under the federal estate tax law, there is no limit to the amount of property and money that a husband can transfer to his or her spouse and without having to pay any estate tax. Another benefit for the surviving spouse here is that she retains the rights to the trust assets and whatever income they may gain throughout her lifetime.
In the instance the surviving wife eventually dies, the properties will be transferred to the other beneficiaries stated in the credit shelter trust such as the children. In the same way, no estate taxes will have to be paid.