How Credit Shelter Trusts Can Be Added to Your Estate Plan

Trusts can play a crucial role in your estate planning strategy. They can reduce your taxable estate and allow you to determine how and where your assets will be transferred to your loved ones after you pass. A type of trust that can be particularly useful for couples is the credit shelter trust.

How Do Credit Shelter Trusts Work?

A credit shelter trust, also called a B-Trust (or Bypass Trust), is created after the death of one spouse in a married couple. The credit shelter holds the assets of the deceased spouse and separates them from the estate of the living spouse. The trust is capped at the current estate tax exemption ($13.99 million per person in 2025; $15 million per person in 2026, per the IRS). Credit shelter trusts can greatly reduce estate tax liability or even help you avoid estate taxes if the estate is less than the combined exemptions of both spouses.

Another important aspect of the credit shelter trust is that the income from the trust does not need to be paid out, and anybody can be a beneficiary of trust assets during the lifetime of the surviving spouse. Credit shelter trusts are also irrevocable, so once they’re established, they’re set in stone.

What Are the Benefits of a Credit Shelter Trust?

Being able to “lock in” an estate tax exemption amount can be very powerful. The federal estate tax exemption is currently $13.99 million per individual for 2025 and increases to $15 million per individual for 2026, following the extension and expansion of the exemption under recent legislation. If you’re a high-net-worth family and you or your spouse dies before 2026, you can lock in the current federal estate tax exemption plus all appreciation associated with it.

You might be thinking, “Why do I need this? I can just use portability?” The major benefit of the credit shelter trust is that it gets any appreciation from the assets in the trust out of your estate. Whereas, if you just use portability, that appreciation stays within the surviving spouse’s estate and may tip the surviving spouse over the federal or state estate tax threshold.

Additionally, the deceased spouse can control where the trust assets go after the surviving spouse dies. This means the surviving spouse gets access to those assets during his or her lifetime, but the deceased spouse still maintains a level of control over where any remaining assets may go. The benefits of this strategy might be if you have a blended family and you want to ensure your assets go to your children and not your spouse’s. Or, if your spouse remarries, they can’t then bequeath the assets to their new spouse.

Assets in the trust also tend to be protected from creditors (hence the name). So, for example, if you’re the surviving spouse and you get in a bad car accident and get sued, the assets in the credit shelter trust are going to be a lot harder to reach than the assets that are just in your individual name.

Is a Credit Shelter Trust Right for Me?

High-net-worth couples should consider adding a credit shelter trust to their estate plan—particularly those with combined estates that may approach or exceed the federal exemption, those with blended families, or those in states with a separate, lower state estate tax exemption. To learn more about using estate planning to prepare for upcoming tax changes in 2026, watch our recent webinar on YouTube.

Frequently Asked Questions

1. What is a credit shelter trust?  

A credit shelter trust (CST) — also known as a bypass trust or B-Trust — is an irrevocable trust created at the death of the first spouse in a married couple. It holds the deceased spouse’s assets up to the federal estate tax exemption amount, keeping those assets (and any future appreciation) out of the surviving spouse’s taxable estate. 

2. How does a credit shelter trust reduce estate taxes?  

Assets placed in a credit shelter trust are removed from the surviving spouse’s taxable estate. Critically, any growth on those assets is also excluded. For example, if $5 million is placed in a CST and grows to $8 million by the time the surviving spouse passes, the full $8 million passes to heirs estate-tax-free. Without the trust, that $3 million in appreciation would remain in the surviving spouse’s estate and could be subject to estate tax. 

3. What is the difference between a credit shelter trust and portability?  

Portability allows the surviving spouse to use the deceased spouse’s unused federal estate tax exemption. However, any appreciation on those assets still remains inside the surviving spouse’s estate. A credit shelter trust removes both the original assets and all future appreciation from the surviving spouse’s estate. A CST also offers creditor protection and allows the deceased spouse to control where assets ultimately go — benefits that portability does not provide. 

4. What is the current estate tax exemption for 2025 and 2026?  

Per the IRS, the federal estate tax exemption is $13.99 million per individual for 2025. For 2026, it increases to $15 million per individual — or $30 million for a married couple using both exemptions. Note that some states have their own estate taxes with lower exemption thresholds. Source: IRS.gov 

5. Who should consider a credit shelter trust?  

A CST is most beneficial for:  

(1) married couples whose combined estate may approach or exceed the federal exemption,  

(2) blended families who want to ensure assets pass to specific heirs,  

(3) couples in states with a separate, lower state estate tax exemption, and  

(4) those concerned about creditor protection for assets the surviving spouse will rely on. 

6. Can the surviving spouse access assets in a credit shelter trust?  

Yes, with limitations. The surviving spouse can receive income generated by the trust assets. In certain circumstances — such as needs related to health, education, maintenance, or support — the trustee may also distribute principal. However, the surviving spouse does not have direct control over the trust assets. 

7. What are the drawbacks of a credit shelter trust?  

The main limitations are:  

(1) irrevocability — once funded, the trust terms are very difficult to change;  

(2) the surviving spouse has limited control over the principal;  

(3) the trust must file its own annual federal income tax return; and  

(4) a CST may provide little benefit if the estate is well below the federal exemption threshold. 

8. How is a credit shelter trust different from a revocable living trust?

A revocable living trust can be changed or dissolved during the grantor’s lifetime and does not provide estate tax or creditor protection on its own. A credit shelter trust is irrevocable once funded and is specifically designed to remove assets from the taxable estate. The two are often used together — a revocable living trust may be structured to fund a credit shelter trust automatically upon the first spouse’s death.

If you’d like to connect with Wealth Enhancement’s team of advisors and estate planning specialists with decades of experience working with trusts, reach out today. 

The information provided is for educational purposes only and does not constitute legal or tax advice. Please consult a qualified estate planning attorney or financial advisor for guidance specific to your situation. 

#2026-13843