Trusts can play a crucial role in your estate planning strategy. They can reduce your taxable estate and allow you to determine how and where your assets will be transferred to your loved ones after you pass. A type of trust that can be particularly useful for couples is the credit shelter trust.

How Do Credit Shelter Trusts Work?

A credit shelter trust, also called a B-Trust (or Bypass Trust), is created after the death of one spouse in a married couple. The credit shelter holds the assets of the deceased spouse and separates them from the estate of the living spouse. The trust is capped at the current estate tax exemption ($13.61 million per person in 2024). Credit shelter trusts can greatly reduce estate tax liability or even help you avoid estate taxes if the estate is less than the combined exemptions of both spouses.

Another important aspect of the credit shelter trust is that the income from the trust does not need to be paid out, and anybody can be a beneficiary of trust assets during the lifetime of the surviving spouse. Credit shelter trusts are also irrevocable, so once they’re established, they’re set in stone.

What Are the Benefits of a Credit Shelter Trust?

Being able to “lock in” an estate tax exemption amount can be very powerful, especially since the federal estate tax exemption is currently set to be cut in half at the end of 2025. If you’re a high-net-worth family and you or your spouse dies before 2026, you can lock in the current federal estate tax exemption plus all appreciation associated with it.

You might be thinking, “Why do I need this? I can just use portability?” The major benefit of the credit shelter trust is that it gets any appreciation from the assets in the trust out of your estate. Whereas, if you just use portability, that appreciation stays within the surviving spouse's estate and may tip the surviving spouse over the federal or state estate tax threshold.

Additionally, the deceased spouse can control where the trust assets go after the surviving spouse dies. This means the surviving spouse gets access to those assets during his or her lifetime, but the deceased spouse still maintains a level of control over where any remaining assets may go. The benefits of this strategy might be if you have a blended family and you want to ensure your assets go to your children and not your spouse’s. Or, if your spouse remarries, they can’t then bequeath the assets to their new spouse.

Assets in the trust also tend to be protected from creditors (hence the name). So, for example, if you're the surviving spouse and you get in a bad car accident and get sued, the assets in the credit shelter trust are going to be a lot harder to reach than the assets that are just in your individual name.

Is a Credit Shelter Trust Right for Me?

High-net-worth couples should consider adding a credit shelter trust to their estate plan—especially considering that the federal estate tax exemption will soon be cut in half. To learn more about using estate planning to prepare for upcoming tax changes in 2026, watch our recent webinar on YouTube.

If you’d like to connect with Wealth Enhancement’s team of advisors and estate planning specialists with decades of experience working with trusts, reach out today.