Credit shelter trust, also known as a bypass or family trust, is an estate-planning vehicle designed to use the federal estate-tax exemption of the first spouse to die and shelter future appreciation from estate tax in the surviving spouseTMs estate. At the first death, assets equal to the available exemption flow into the trust, which can provide income and limited principal access for the survivor and descendants while keeping the trust corpus outside the survivorTMs taxable estate. Credit shelter trusts are often paired with marital or QTIP trusts and may hold investments, real estate, or life insurance.

Advisors discuss credit shelter trusts with estate-planning attorneys when working with married couples whose estates may eventually exceed exemption amounts or who live in states with separate estate taxes. They coordinate beneficiary designations and ownership structures so that life insurance death benefits or other assets properly fund the trust at the first death. In blended families, credit shelter trusts can protect childrenTMs interests while still supporting the surviving spouse. Understanding credit shelter trusts enables advisors to align insurance strategies with tax-efficient wealth transfer goals.