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Credit Shelter Trusts

A credit shelter trust is a trust that is available to married individuals in order to avoid estate taxes when they leave assets to their heirs. A credit shelter trust is created so that in the event of the death of the investor, the assets that are listed within the trust and in the trust agreement are transferred to the beneficiaries of the trust. The advantage of a credit shelter trust is that the spouse of the investor holds the rights to the trust assets and the income that is created by the assets during the rest of their lifetime. Given below are a few questions answered by the Experts on credit shelter trust related issues.

Can a deceased parent’s credit shelter trust lend money to a beneficiary to avoid paying taxes on a loan?

In this case, the only way the individual could do this is if the trust terms allow for the loan. If they do, the trust can offer a loan to the beneficiary and they wouldn’t have to pay taxes on the loan. However, if interest is earned on the loan, the trust would be required to pay income tax on the loan unless distribution of income is allowed by the trust. If so, income tax from the interest would need to be paid by the beneficiaries who get the income. Now, if the trust does not allow a loan, the loan cannot be sanctioned. Normally, if the trustee is given the authority to make investments, they would be allowed to loan the money to the beneficiary. If this is done, the trustee would need to make sure that they are not violating their trust agreement that may require careful investments. This could mean that loans can only be given based on a set of stringent terms much like a third party loan.

In a credit shelter trust, is the trust required to file a tax return? If so, who is responsible for paying the taxes?

This type of trust is required to submit a separate tax return. This is because the credit shelter trust will have a differed taxpayer identification number. In many cases, the funds from the credit shelter trust are divided between the beneficiaries and the beneficiaries will be responsible for paying the taxes on these funds. The credit shelter trust tax return will be required to have a Schedule K-1 that states how the funds were divided between those involved. However, the credit shelter trust can also be taxed if the funds are not divided, or there are capital gains from the sale of a capital possession. It will then be the trustee’s responsibility to maintain and pay all the taxes of the credit shelter trust.

If an individual created a credit shelter trust in the State of Colorado and then moved to Hawaii, would they be required to have the trust and will changed or send a written letter with the changed address?

If the will and credit shelter trust were both created correctly according to the state laws of Colorado, they will still be upheld in the new state the individual has decided to move to. If the only change is the address, the individual is not required to provide a legal written notice of the address change.

What will happen if a credit shelter trust was not supported with funds before the grantor’s death? Can the funds still be transferred to the trust after their death?

In most cases, credit shelter trusts are not required to be funded until the death of the grantor. This type of trust is intended to protect a person’s estate tax exemption from being lost by way of property being moved to the surviving spouse.

Setting up a credit shelter trust and understanding the terms and conditions of this trust are not always easy. Individuals can have many questions about running the trust, tax payments and so on. In these situations, it is always better to seek a professional’s help. Put your questions to the Experts now for quick and insightful information to help you with your own case.

Ask an Estate Lawyer

Thomas McJD
Thomas McJD, Attorney
Category: General
Satisfied Customers: 3170
Experience:  Wills, Trusts, Probate & other Estate Matters
19305272
Type Your Estate Law Question Here...
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8 Estate Lawyers are Online Now

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Estate Lawyers are online & ready to help you now

Thomas McJD
Attorney
Satisfied Customers: 3076
Wills, Trusts, Probate & other Estate Matters
Infolawyer
Attorney
Satisfied Customers: 3781
Licensed attorney helping individuals and businesses.
Barrister
Attorney
Satisfied Customers: 2188
13 yrs estate law, real estate. Wills/Trusts/Probate

Recent Credit Shelter Questions

  • My 23 year old son was killed in a haying accident on July

    My 23 year old son was killed in a haying accident on July 24th of this year. He lived with me and paid 1/3 of the bills, but he had no bills in his name except a student loan which they wrote off after I sent them a copy of his death certificate. He has a bank account that was only in his name and he was killed about a week after he set up the account. I need to know where I need to go and what I need to do to become the executor of his estate.
  • Hello: I Would really appreciate if you could help me. In

    Hello:
    I Would really appreciate if you could help me. In 2004 my wife a CPA with a masters in tax gave up a partnership in a CPA firn to run her parents building supply company as a CEO with a 40% pay cut. She cut costs and increased profits. Her sister also worked there or I should say collected a pay check. My son worked at the company since 2000. My wife told me upon my inlaws death she was to inherit 51% of the company. In 2008 my dear wife of 36 years was diagnosed with ovarian cancer. She died in 2011 and within 6 months my son who I will admit was very angry was pushed out of the company. He was devistated and niether Grandma or Grandpa stepped in and helped.My two children both love their granparents to death and defend them. My sisterinlaw now runs the company and lives like a rock star. My inlaws are old and grampa is taking care of granma with dimentia. Anyway I asked my fatherinlaw if my kids are to inherit anything he said yes my wifes portion. My kids are mad I even asked. He said yes. I or my adult kids have never been talkedt about this. I have not seen anything in writing. Do my kids having any options can they just cut my kids out and give everything to his remaining daughter? I expect nothing I am a retired Federal agent who was forced to retire atv57 yoa by law and now my mother died. Myself and my children have been through so much. My late wife held the whole family together and all thecriches they enjoy was because of my wife. Do my kids have any rights or options?
    Thank you
    Frank
  • I was given a condominium (value $28,000) by my friend who

    I was given a condominium (value $28,000) by my friend who is in a nursing home. She does not have dementia. I am her power of attorney and an attorney prepared a Quit Claim Deed for this purpose and filed it. Do I need to pay taxes on that property when I file my income taxes for 2014 and if so, is there anything I can do to be proactive with the taxes so I would not owe the IRS?
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