Estate planning decisions depend on more than a couple’s savings. Federal taxes and inheritance wishes can all affect the trust choice. A Nashville estate planning lawyer can help married couples assess whether a credit shelter trust remains useful. The answer depends on the estate’s value and the intended beneficiaries for Tennessee families.
What Does a Credit Shelter Trust Do?
A credit shelter trust is an arrangement intended to preserve the federal estate tax exemption of the spouse who dies first. It is sometimes called a bypass trust or family trust.
Assets pass into an irrevocable trust after the first spouse’s death under a typical plan. The surviving spouse may receive income and certain distributions from those assets. It depends on the trust document. The remaining property passes to the designated beneficiaries after the surviving spouse dies.
This arrangement can keep qualifying trust assets outside the surviving spouse’s taxable estate. It can serve family inheritance goals, too.
The need for these trusts has changed because of the following reasons.
Higher Federal Estate Tax Exemptions
Federal estate tax thresholds have increased substantially over the years. The federal basic exclusion amount is $15 million per individual for deaths occurring in 2026. A married couple may potentially account for up to $30 million in combined exclusions, subject to eligibility and the applicable tax rules.
Many married couples fall below this threshold. This makes federal estate tax savings less important in their planning. A credit shelter trust may still provide inheritance control or other benefits. However, its tax purpose requires an individual calculation.
Tennessee’s Former Inheritance Tax
Tennessee no longer imposes its inheritance tax on deaths occurring after December 31, 2015. The state tax previously affected estate planning decisions for certain families. However, it no longer creates a reason to establish a credit shelter trust for deaths occurring in 2026.
How Does Portability Change the Decision?
Portability allows a surviving spouse to use the deceased spouse’s unused federal estate tax exclusion. This option can reduce the need for a credit shelter trust when the main objective is preserving the couple’s combined federal exemptions.
The election requires a federal estate tax return filed by the deceased spouse’s estate. The usual deadline is nine months after death. Note that an extension is available under the applicable rules.
A Nashville estate planning lawyer can review the couple’s financial circumstances and explain whether portability provides sufficient tax protection. The choice should account for future asset growth and inheritance wishes.
When Can a Credit Shelter Trust Still Be Useful?
Here are the situations when a credit shelter trust can be useful.
Protecting Children From an Earlier Marriage
Certain families may have particular reasons to establish a credit shelter trust. A surviving spouse may remarry or change an estate plan. Trust provisions can help direct designated assets to children from an earlier marriage.
Accounting for Future Asset Growth
An estate valued below the federal tax threshold may grow considerably over several decades. Real estate appreciation and accumulated savings can increase the value of the surviving spouse’s estate. Qualifying assets held in a properly structured credit shelter trust may remain outside the surviving spouse’s taxable estate. The result depends on the trust terms and relevant tax rules.
How Does Nashville Probate Law Affect the Choice?
Probate and estate taxation address different legal issues. Probate involves the administration of an estate through the appropriate court process. On the other hand, a credit shelter trust primarily addresses tax planning and control over inherited property.
Probate matters generally fall within the jurisdiction of the appropriate Davidson County court in Nashville. Property held in a properly funded living trust generally passes under the trust’s terms. It is important to consult a Nashville estate planning lawyer if you want to get relevant insights.
What Should Couples Review Before Making a Decision?
A careful estate review should cover the following points.
- Total Estate Value: Assess property and other assets relevant to estate tax calculations.
- Family Circumstances: Review the intended beneficiaries.
- Administration Costs: Account for trustee duties and ongoing management.
- Future Plans: Reassess the arrangement after major financial or legislative changes.
Could Another Estate Planning Arrangement Work Better?
A simpler arrangement may address the needs of couples whose estates remain below the federal estate tax threshold. Wills and powers of attorney serve different purposes within an estate plan.
The choice depends on asset ownership and future inheritance plans. A Nashville estate planning lawyer can explain the differences.
Conclusion
Tennessee couples do not automatically need a credit shelter trust. The $15 million exclusion for 2026 and portability provisions have changed the calculation for several families. Reviewing the value of the estate and beneficiary arrangements can help determine whether retaining or establishing a credit shelter trust makes sense.
Speak With Hairston & Associates
At Hairston & Associates, we help Nashville families review estate plans and trusts. Our legal team can discuss available options and explain how different arrangements relate to family goals. Call 615-428-7345 or visit 615 Main Street #106, Nashville, TN 37206, to schedule a consultation.