Do I really need a credit trust? It sounds too complicated.

The following example from Evergreen Small Business may convince you of the benefits of a credit trust:

Example 1 (the “wrong way”): Mary and Joe are married, and each have exactly $2,193,000 in assets, for a total marital estate of $4,386,000. When Joe dies he gives Mary his $2,193,000, when Mary later dies her estate equals $4,386,000. Only the first $2,193,000 of Mary’s estate is exempt from the Washington estate tax, however. The estate tax on the remaining $2,193,000 equals roughly $270,000.

Example 2 (the “right way”): Martha and Peter are married, and coincidentally each also has exactly $2,193,000 in assets. But Martha and Peter have a Will with credit trust language. When Martha dies she gives Peter her $2,193,000 million in the credit trust, when Peter later dies the $2,193,000 in the credit trust is not included in his estate. Peter only has an estate of the $2,193,000 he owns outright. There is zero estate tax due at Peter’s death because his $2,193,000 estate equals the estate tax exemption.

If your assets are in the ballpark of these two couples (or higher), then you could save your family a significant amount ($270K in this example!) if you set up a credit trust in your estate planning. Think of it this way — if someone offered your family $270K, and all you have to do is understand what a credit trust is, and sign a few documents to set it up, would you do so? Essentially, that is what you are doing by making a credit trust part of your estate planning.

In summary, a credit trust saves your family a significant amount of money and hassle if you qualify.