A credit shelter trust, a bypass or exemption trust, is a type of trust used in estate planning to reduce the amount of federal or Washington estate tax owed by a deceased person’s estate.

Washington state has a state-level estate tax with an exemption amount of $2,193,000 per person (as of 2023).  The federal estate tax has an exemption amount of $12.92 million per person (as of 2023).

For discussion purposes, I want to focus on using a Washington credit shelter trust to fully use a deceased person’s Washington estate tax exemption amount.

Here’s how it works in simple terms:

  1. The deceased person’s assets are placed into the credit shelter trust up to the full $2,193,000 value.
  2. The trust is set up so that the surviving spouse can use the assets and income generated by the trust, but they do not technically own the assets.
  3. Upon the surviving spouse’s death, the assets in the credit shelter trust are not included in their taxable estate.

By using a Washington credit shelter trust, a married couple can take advantage of both of their Washington estate tax exemptions, which can result in significant tax savings for their heirs.