Which asset cannot be used to fund a credit shelter trust?

Which asset cannot be used to fund a credit shelter trust?

• A. Employee benefit plan
• B. Joint tenancy property
• C. Residence
• D. Life insurance policy

Answer: (B)

A credit shelter trust is funded with assets that are part of the first spouse’s estate so the estate tax exemption can shelter them. Joint tenancy with right of survivorship passes automatically to the surviving spouse at the first death, so none of that property remains in the deceased spouse’s estate to fund the trust. In other words, the asset’s ownership feature bypasses the estate entirely, making it unusable to seed a bypass trust. Assets like a life insurance policy, a residence transferred into the trust, or retirement accounts designated to the trust can be used to fund a credit shelter trust because they can be part of the first spouse’s taxable estate or be directed to pass into the trust.

A credit shelter trust is funded with assets that are part of the first spouse’s estate so the estate tax exemption can shelter them. Joint tenancy with right of survivorship passes automatically to the surviving spouse at the first death, so none of that property remains in the deceased spouse’s estate to fund the trust. In other words, the asset’s ownership feature bypasses the estate entirely, making it unusable to seed a bypass trust.

Assets like a life insurance policy, a residence transferred into the trust, or retirement accounts designated to the trust can be used to fund a credit shelter trust because they can be part of the first spouse’s taxable estate or be directed to pass into the trust.