Trust B - A Credit Shelter Trust

Trust B (also referred to as a By-Pass Trust, Family Trust, or Credit Shelter Trust) allows a married couple to take full advantage of the applicable credit available to each individual, thereby reducing the couple’s estate taxes and probate costs. The result is that more of the estate is passed to the heirs.

In many estates, a trust is set up in what is commonly referred to as an A-B Trust plan. Trust A, the "marital share," can pass estate-tax free to a surviving spouse by utilizing the unlimited marital deduction. Trust A is a popular phrase typically used to describe a type of marital trust.

Trust B, the non-marital share (also called a "Credit Shelter Trust") can also pass tax-free to the last survivor's children for any share of the trust remaining at the survivor's death.

Major Characteristics of Trust B

At the first death, the will or revocable living trust provides for the establishment of a trust equal to the amount that could be passed tax-free through the applicable credit.
The balance of the estate typically passes to the surviving spouse outright or to a trust that qualifies for the unlimited marital deduction.
The surviving spouse and/or family members may receive income and principal from the Trust B under certain standards.
Care must be taken that no right be granted that causes the trust assets to be included in the surviving spouse's estate.
If properly set up at the death of the surviving spouse, the assets remaining in the Trust B should not be taxed in the estate of the surviving spouse.

Benefits of Trust B

The assets remaining in the Trust B at the death of the surviving spouse can pass outright to the heirs or in trust for their benefit; this helps avoid both estate taxation and probate expenses at the surviving spouse's death.
Through proper planning, a married couple may use a Trust B to transfer a defined amount of assets to their children or other beneficiaries free of federal estate taxes. This amount is determined by the applicable credit.

The surviving spouse may be an income beneficiary of the Trust B.
- The decedent may specify who will receive the remaining assets at the death of the surviving spouse, which can help provide peace of mind.
- If a person selects a corporate fiduciary (bank trust department) to serve as trustee, the beneficiaries receive professional asset management.
- The amount of the estate passing to the surviving spouse (in excess of what is put in the Trust B) may qualify for the unlimited marital deduction and therefore pass federal estate-tax free at the death of the first spouse.