Smart tax planning is a critical component in protecting assets you intend to leave your loved ones. Assets left to beneficiaries by a decedent are subject to the Federal Estate Tax. Absent a properly crafted estate tax plan, your loved ones may receive less than you intended. Fortunately, with the help of a skilled and dedicated estate tax planning attorney, you can implement a strong asset protection plan that will minimize or potentially altogether negate the effect of the Federal Estate Tax.

A Credit Shelter Trust Is Valuable Tool in Estate Tax Planning

An effective estate tax plan factors in both state and federal taxes. In Washington state, there exists a $2.0 million exemption for each person, and the tax rate starts at 10% and is capped at 19%. On the federal level, there is a $5.43 million per person exemption, and the tax rate begins at 40% and is capped at 50%. Whether or not you are married bears significantly on the rate of tax imposed. Specifically, estate tax liability can be very high if a surviving spouse dies in possession of all of the assets once owned together by both spouses. To protect against this financially undesirable scenario, spouses may wish to create a credit shelter trust as part of a Will or revocable living trust. Doing so eliminates significant tax liability by funding the trust with one-half of the taxable estate (up to the exemption ceiling) at the time of the death of one spouse. Credit shelter trusts facilitate use of both state and federal trusts. As note above, the estate tax exemption is made on a per person basis. A simple, yet critically important point is that when both spouses are living, there are two people, and when only one spouse remains, there is only one person. Without estate tax planning, the remaining one person will only be able to use one estate tax exemption. This is where a credit shelter trust comes in. Because the estate tax is “portable” between spouses, a surviving spouse is able to use any portion of the exemption not used by the decedent spouse. In other words, effective estate tax planning preserves the exemption of the first spouse – it continues to benefit the surviving spouse (and the spouse’s beneficiaries) after the first spouse is gone. To learn more about implementing a credit shelter trust in your Will or revocable living trust, contact an experienced estate tax planning attorney online or call (425) 227-8700 today.