New Jersey Credit Shelter Trust

On behalf of David Whitlock at Whitlock Canter LLC

Paramus Credit Shelter Trust Information

The Credit Shelter Trust (sometimes referred to as a “Bypass Trust” or an “A/B Trust”) is a popular estate planning technique used by married couples with combined assets in excess of $675,000. The purpose of the Credit Shelter Trust is to avoid the wasting of federal and state exemptions on the death of the first spouse. Instead of leaving all assets to the surviving spouse and thereby exposing the surviving spouse’s estate to more tax, both spouse’s
Wills are drafted to establish a Credit Shelter Trust to come into existence and be funded on the first spouse’s death. In a typical Credit Shelter Trust, the surviving spouse is entitled to receive all of the income from the
Trust for his or her lifetime, and has the right to demand principal distributions for his or her health, education, support and maintenance in his or her accustomed manner of living. Distributions in excess of that standard require the cooperation of a Co-Trustee – often an adult child of the surviving spouse or a trust department of a bank.

The amount which funds a typical Credit Shelter Trust varies according to a particular Client’s financial and family circumstances. For Federal Estate Tax purposes, a Credit Shelter Trust can be funded with the Decedent’s remaining
federal estate tax exemption ($2 million as of 2006 if no prior gifts have been made). However, in New Jersey, since the state estate tax exemption is only $675,000, if the Credit Shelter Trust is funded with more than $675,000, this will cause some New Jersey Estate Tax to be paid. If the full $2 million is funded, the tax to the State of New Jersey is $99,600. Because of this, many Clients choose to fund the Credit Shelter Trust with only $675,000. In New York, the state estate tax exemption is $1 million.

If the Credit Shelter Trust technique is implemented as part of a Client’s Estate Plan, Whitlock Canter LLC will assist the Client in re-titling his or her assets so that assets are available to fund the Credit Shelter Trust. This is necessary because most Clients tend to hold assets jointly with right of survivorship and assets must be titled individually in a person’s name in order to be eligible to fund a Credit Shelter Trust.