Reasons To Use A Credit Trust

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Reasons To Use A Credit Trust

• A Credit Trust is established in the will or
  living trust of a married couple. The surviving
  spouse is typically the beneficiary. This trust
  is often used as an estate tax tool by utilizing
  the federal estate tax credit of the first spouse
  to die however, it is also a valuable asset
  protection tool.

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While portability is the new thing, there are
very important reasons to still use a Credit
Trust instead
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Creditor Protection.
Post Death Asset Appreciation
Certainty 
State Law Problems
Other Issues
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Creditor Protection
One of the best and main reasons to utilize a
Credit Trust is to protect assets from creditors,
second spouses, etc. There is no such protection
when relying on portability. 
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Post Death Asset Appreciation
The value of the Credit Trust's assets will be
"frozen" and any future appreciation of those
assets will escape estate taxes. Note that a
credit trust is sheltered from GST taxes but that
is not the case with portability.
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Certainty 
A Credit Trust guarantees who the remainder
interest will pass to (e.g. children of a prior
marriage). Portability allows the second spouse
complete discretion over all of the assets, which
means if the surviving spouse remarries and is
the first to die in that marriage all the assets
could be lost to that new spouse.
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State Law Problems
There is no comparable state portability
exemption. Losing this exemption can result in
higher Washington state estate taxes on the death
of the second spouse.
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Other Issues
With portability the executor must file an estate
tax return with a proper election when the first
spouse dies even if there would otherwise be no
such return required. If the election is not
timely made, the exemption is lost. Also, if the
surviving spouse remarries much, if not all, of
the portability from his or her first spouse will
be lost. Seattle Tax Attorneys counsel that all
of these present additional expenses and traps
for the unwary.
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