A credit shelter trust is a special type of living trust that may be established between two married people. It is set up during the partners’ lifetimes and generally benefits their children when they are both gone. At its most basic level, a credit shelter trust takes possession of the partners’ assets and when one dies, the assets pass to the beneficiaries who must use it for the benefit of the surviving partner. When the second spouse passes away, their children take possession of the assets.
One of the biggest benefits that individuals experience when they use credit shelter trusts is the reduction or elimination of their estate taxes. Because the spouse who survives the death of the partner does not own the assets in the trust, those assets are not taxed on their distribution when the surviving spouse also passes away.
Additionally, credit shelter trusts allow surviving spouses to maintain some control over the assets that will benefit them, even if they do not technically own them. A surviving spouse who has a credit shelter trust in place may have some ability to manage the assets that have been set up to support them without carrying the responsibility of ownership. These are only some of the benefits of credit shelter trusts that individuals may experience when they choose to put them in place. New Jersey residents will likely need to get more information about their own unique circumstances.