Astute estate planning might include:
* A credit shelter trust, also known as a bypass trust. At the death of the first spouse, the trust holds the deceased spouse’s assets in trust, paying out income to the surviving spouse. However, assets held in a properly drafted credit shelter trust are not considered to be owned by the surviving spouse. Thus, at the survivor’s death, assets in this trust can pass to the children free of federal taxes.
* A qualified terminable interest property (QTIP) trust. Assets not left to a credit shelter trust can go into a QTIP trust, from which the surviving spouse can draw income. No federal estate tax will be due on assets placed in a QTIP trust until the surviving spouse dies. At the survivor’s death, trust assets will pass to the heirs named by the QTIP creator so this type of trust is often used by people in second or third marriages who want to specify that assets will pass to their own descendants.