Credit Shelter Trust
Current tax law gives each taxpayer a unified credit against estate tax which would allow decedent’s estate to protect up to $5,400,000.00 from federal estate tax under this provision. A married couple with a joint estate which exceeds $5,400,000.00 in value must consider establishing a credit shelter trust (also called a "CRUT") either in their will or revocable living trust. While leaving your entire estate to your spouse outright might seem like a good idea because it will result in no federal estate tax on the estate of the first spouse to die, it will cause the surviving spouse's taxable estate to contain all of the couple's assets for estate tax purposes. If the total of these assets exceeds $5,400,000.00 (including life insurance) there will likely be a federal estate tax.
A Credit Shelter Trust (also called a "bypass" trust) will allow up to $5,400,000.00 of the estate of the first spouse to die to pass tax free to the next generation, while allowing the surviving spouse to enjoy those assets during his or her lifetime. The use of a Credit Shelter trust will allow a married couple to shelter up to $10,800,000.00 from the federal estate tax. Since the Connecticut Estate Tax allows a $2,000,000.00 exemption per estate, in addition to the marital deduction, a married couple utilizing the credit shelter trust can shelter only a total of $4,000,000 from Connecticut Estate Tax through the use of Credit Shelter Trusts. The $3,400,000.00 difference between the federal estate tax exemption and Connecticut estate tax exemption presents complicated options to an executor.
The area of federal estate tax has been in flux for the past several years and likely will see more changes in the years to come. Simple changes by Congress or the Connecticut Legislature can render obsolete even the best estate plans. Taxpayers should regularly consult with their estate planning attorney to make sure their estate plan is current and effective. Attorney Rubino is an experienced tax attorney who will assist you in making the right elections for federal and Connecticut estate tax purposes.