Credit Shelter Trust

Credit Shelter Trust also known as AB Trust, Credit Shelter trust is used to protect your ability to use your unified credit exemption and unlimited marital deduction when joint assets are over the unified credit amount.

The following trusts are examples of testamentary trusts, trusts that are set up through your will and become effective upon your death.

Credit Shelter Trust sometime referred to as an AB trust, this is used to protect your ability to use your unified credit exemption and unlimited marital deduction when joint assets are over the unified credit amount.

On the death of the first spouse, assets valued up to the exemption amount are placed in the trust. The surviving spouse has an automatic right to all the income from the trust but may only have use of the principal at the trustee's discretion. If the surviving spouse is the trustee, it is critical to use specific language approved by the IRS for the use of the principal. Done incorrectly, the language can invalidate the trust. This is another reason to use a good attorney. Upon the death of the second spouse, the assets of the trust, including any growth, pass to the children free of federal estate taxes.

Qualified Terminable Interest Property Trust (Q-TIP)

Q-TIP provides the surviving spouse with income from the assets in the trust, but you have control as to the ultimate disposition of the assets in the trust.

Qualified Terminable Interest Property Trust (Q-TIP) provides the surviving spouse with income from the assets in the trust, but you have control as to the ultimate disposition of the assets in the trust. Usually, the principal passes to your children upon the spouse's death. The Q-TIP trust qualifies for the marital deduction and is a very popular tool to use in second marriages, ensuring that children from a first marriage eventually receive your assets.

Special needs trust. This is set up for dependents with special needs. If properly set up,  the trust can benefit your dependent child by protecting their access to government benefits as well as by creating a management system to support the dependent when you are no longer around. These trusts must be carefully drafted so as not to disqualify a child for government benefits.