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In Reply to: Re: Credit sheter trust posted by Steve on March 18, 2004 at 10:37:14:
The purpose of an Credit Shelter trust is to accept the exclusion allowance when the donor dies.
It is not to accept an inheiritance. Anything more than the exclusion allowance will be taxed.
Both husband and wife has an exclusion allowance. If the husband did not use the credit shelter trust and left the excluded amount directly to his wife, that amount would be taxed in her estate.
By leaving, by the will, the exclusion allowance to the credit shelter trust, if will never be taxed.
If you could leave an unlimited amount to the credit shelter trust, than no one would ever pay estate taxes.
: : Is is common for a Credit Shelter trust to be a completely separate document from the original revocable trust document or is it a section of the original revocable trust document?
: Here are my assumptions based on some research.
: The purpose of a credit shelter trust is to leave an inheritance to someone AND bypass transfer taxes associated with that (Magnus).
: A revocable trust doesn't have the tax advantages that an irrevocable trust has (MoneyCentral).
: All trusts are contractual agreements between the grantor, trustees and beneficiaries (Wycoff). If an irrevocable trust contract is not written properly, it could result in unexpected and unwanted tax liabilities for the recipient or the grantor.
: Here is an example of an irrevocable trust contract.
: So my answer to your question has to be no, it shouldn't be part of the original revocable trust document. Could it be? I suppose it could, but I could see problems arising if it were. What the taxman wants to see is a clear, unequivocal declaration of an irrevocable trust, and a safer way to establish that is through a separate document.
: This post should not be taken as legal or financial advice, but I hope it helps.