Credit Shelter Trusts

A credit is an amount that reduces or eliminates tax. Each taxpayer qualifies for a credit that is available for estate tax purposes. An individual may make bequests up to the applicable exclusion limit before federal estate taxes are payable. The applicable exclusion limit for year 2008 is $2 million. The estate tax exclusion is scheduled to increase to $3.5 million in the year 2009, while the gift tax exclusion remains at $1 million and does not increase further.

It would be very simple for a married individual to bequeath all assets to his or her spouse. Under the marital deduction an unlimited amount of assets may be left to a spouse with no federal estate taxes being applied – providing the spouse is a U.S. citizen. This type of arrangement is called a “simple will.” However, using only the unlimited marital deduction may not be the most effective estate planning strategy for those with large estates. By passing all assets to the surviving spouse, the credit for the first to die is lost, leaving a higher taxable estate when the second spouse dies. In order to make the most of the credit, a Credit Shelter Trust may be utilized.

The Credit Shelter Trust is a commonly used estate planning strategy. The credit amounts as defined by the IRS will increase in year 2009 as follows:

*Applies to gift tax only.

Source: Internal Revenue Service

In 2010, the estate tax is scheduled to be repealed, but only for one year. In 2011, the tax laws will revert back to its prior form to the passage of the Economic Growth and Tax Relief Reconciliation Act of 2001, unless a new tax law is enacted.

Advantages:

• Allows both spouses to take advantage of the exclusion amount
• Shelter up to $3,500,000 (per spouse) from federal estate tax (2009)
• Can provide income to surviving spouse (and limited access to principal as desired)

Disadvantages:

• Assets in this trust may be difficult for the spouse to access
• Requires a legal document which will result in the need for professional assistants and will have costs associated with preparation

Our planning services are not financial planning (unless they are specifically called investment consulting services). They do not create an investment advisory or a fiduciary relationship (including under ERISA) between you and B.C. Ziegler and Company. B.C. Ziegler and Company will prepare a financial plan at your specific request through NaviPlan.

Investment consulting services are offered at B.C. Ziegler and Company only through investment advisory programs and are not available through traditional brokerage accounts and products. Please speak with a Ziegler Wealth Management financial advisor to further discuss the differences between brokerage and advisory products offered by B.C. Ziegler and Company.