Termination of Credit Shelter Trusts

by Poyner Spruill LLP

As discussed in a previous article, due to higher estate tax exemption, certain trusts previously established for purposes of avoiding estate taxes under the estate plan of a predeceased spouse may no longer be necessary in light of the new federal estate tax law.

The 2012 Tax Relief Act provides an exemption from federal estate tax of $5,250,000. This exemption of $5,250,000 results in a great number of credit shelter trusts (CSTs) no longer being necessary to avoid federal estate tax on the death of the surviving spouse. These credit shelter trusts are often called the Family Trust, Credit Shelter Trust or By Pass Trust. Historically on the death of the first spouse, it was common to establish a CST for the surviving spouse and perhaps also for other members of the family equal to the estate tax exclusion amount which we have included in the chart below.

Year of Death​ ​Estate Tax
Exclusion Amount
1977​ $120,667
​1978 $134,000
​1979 $147,333
​1980 $161,563
​1981 $175,625
​1982 ​​$225,000
​1983 ​​$275,000
​1984 ​$325,000
​1985 ​$400,000
​1986 ​$500,000
​1987 - 1997 ​$600,000
​1998 ​$625,000
​1999 ​$650,000
​2000 & 2001 ​$675,000
​2002 & 2003 ​$1 million
2004 & 2005​ ​$1.5 million
​2006 - 2008 ​$2 million
​2009 ​$3.5 million
​2010 ​$5 million
​2011 ​$5 million
​2012 ​$5.12 million
​2013 ​$5.25 million

The CST would utilize the estate tax exclusion amount of the first spouse to die and would not be subject to estate tax on the death of the surviving spouse. As stated above, a surviving spouse is entitled to an exemption in 2013 of $5,250,000. If the assets owned by the surviving spouse plus the surviving spouse’s share of the assets of the CST are less than $5,250,000 at the death of the surviving spouse, the CST is no longer necessary to avoid estate taxes on the death of the surviving spouse, although there may be other valid reasons to keep such a trust in effect.

North Carolina law allows a CST to be terminated. The court may terminate a CST upon consent of all the beneficiaries of the CST if it is determined that the continuation of the CST is not necessary to achieve its original purpose. If one or more beneficiaries do not agree with the proposed termination, the court may still terminate the CST if the termination of the trust will adequately protect the non-consenting beneficiary.

For example, the husband passed away in 1987 and his estate planning documents established a CST equal to the estate tax exclusion amount in 1987 of $600,000 for the benefit of his wife for her lifetime and remainder at her death to their children in equal shares. The CST now has a value of $1,000,000. The wife has assets in her individual name of $1,500,000. The wife is eighty years of age. The CST may be terminated with the wife and children taking their actuarially determined shares without gift tax consequences. The wife’s share of the CST would be $93,650 and the children’s share of the CST would be the balance of $906,350. The value of the wife’s estate for estate tax purposes would be $1,593,650 ($1,500,000 + $93,650) that is well below her estate tax exclusion amount of $5,250,000. Also termination of the CST eliminates future Trustee fees, trust administration expenses, accountings and income tax returns.

In summary, a CST may now be terminated. If the surviving spouse’s share of the CST and his or her individual assets will not exceed $5,250,000 at the time of the surviving spouse’s death, the CST is no longer necessary to save estate taxes in the estate.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Poyner Spruill LLP | Attorney Advertising

Written by:

Poyner Spruill LLP

Poyner Spruill LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.