Which estate planning tool uses the decedent's unused exemption to shelter assets from federal estate tax while allowing income or access to the surviving spouse?

Which estate planning tool uses the decedent's unused exemption to shelter assets from federal estate tax while allowing income or access to the surviving spouse?

• A. Qualified Personal Residence Trust
• B. Irrevocable Life Insurance Trust
• C. A-B trust
• D. Charitable Remainder Trust

Answer: (C)

This concept centers on using a decedent’s unused federal estate tax exemption to shield assets from tax while still letting the surviving spouse benefit. That is accomplished with a credit shelter trust, typically implemented as an A-B trust. After the first spouse dies, assets are split into two parts: the A trust (the marital portion) provides for the surviving spouse, usually with income for life and access to trust resources; the B trust (the credit shelter portion) holds assets up to the deceased spouse’s unused exemption. The assets in the B trust are kept out of the survivor’s estate for tax purposes at the second death, so they’re sheltered from federal estate tax, while the survivor continues to benefit from the trust’s terms. The other tools don’t accomplish both goals together: they focus on other planning benefits (like reducing value of a residence, using life insurance outside the estate, or benefiting charity) but not the combination of sheltering with ongoing access for the surviving spouse.

This concept centers on using a decedent’s unused federal estate tax exemption to shield assets from tax while still letting the surviving spouse benefit. That is accomplished with a credit shelter trust, typically implemented as an A-B trust. After the first spouse dies, assets are split into two parts: the A trust (the marital portion) provides for the surviving spouse, usually with income for life and access to trust resources; the B trust (the credit shelter portion) holds assets up to the deceased spouse’s unused exemption. The assets in the B trust are kept out of the survivor’s estate for tax purposes at the second death, so they’re sheltered from federal estate tax, while the survivor continues to benefit from the trust’s terms. The other tools don’t accomplish both goals together: they focus on other planning benefits (like reducing value of a residence, using life insurance outside the estate, or benefiting charity) but not the combination of sheltering with ongoing access for the surviving spouse.