HomePersonal FinanceCredit Shelter Trust (A-B Trust)

Credit Shelter Trust (A-B Trust)

Last updated 29th Nov 2022


The term credit shelter trust refers to an estate planning tool that allows married couples to minimize estate taxes by taking advantage of the exemptions offered by the federal government. Credit shelter trusts can provide tax savings when the total value of a married couple's estate is in excess of $10 million.


Also referred to as an A-B trust, a credit shelter trust (CST) is an estate planning tool used to protect the assets of the donor from state and federal income taxes. Since the federal estate tax exemption is in excess of $5 million for each individual, CSTs provide tax savings when a married couple's estate is greater than $10 million.

As is the case with other types of trusts, a CST involves a grantor / settlor, which places assets into the trust. A credit shelter trust is also an irrevocable trust, meaning the instructions of the settlor cannot be changed once the trust is created.

This type of trust is usually established by the donor upon their death. The assets in the trust are owned by the trust's beneficiaries, which are typically the married couple's children. However, the surviving spouse still has access to all of the income generated by the trust's assets, and may even be able to use the trust's corpus to pay for certain medical expenses for the remainder of their lifetime. Upon the death of the surviving spouse, the remaining assets are distributed to their beneficiaries, typically their children.


Ann and Bill have amassed an estate with a total value of $10 million. When Bill passes away, he leaves his entire estate, valued at $5 million to his wife Ann. Since this value is under the federal estate tax exemption, the assets are passed onto Ann on a federally tax-free basis.

Several years later, Ann also passes away and leaves her entire estate to her two children. Since the value of Ann's estate is $10 million, federal income taxes are due on the amounts in excess of the federal estate tax exemption.

If Bill's will established a credit shelter trust upon his death, his estate of $5 million would have passed to his heirs on a federal income tax-free basis. In addition, Ann would have access to the income produced by those assets until her death. When Ann passes away, her estate of $5 million would have also passed to her heirs on a federal income tax-free basis.

Related Terms

irrevocable income-only trust, marital trust, charitable remainder trust, bypass trust

Moneyzine Editor

Moneyzine Editor