Is a credit shelter trust the same as an AB trust?

Yes. A credit shelter trust is also called a bypass trust or an AB trust. The “B trust” in an AB structure is the credit shelter trust, while the “A trust” is the marital trust.

Can a surviving spouse access the credit shelter trust assets?

Yes, but with limits. The surviving spouse can typically receive income from the trust and distributions for health, education, maintenance, and support. They do not have unlimited control over the principal.

Does a credit shelter trust avoid probate?

Yes. Assets held in a credit shelter trust pass directly to the named beneficiaries without going through probate court.

Should I update my credit shelter trust after the 2026 tax changes?

Very likely. If your estate plan was drafted before 2026, the funding formulas in your credit shelter trust may direct too much or too little into the trust based on the new $15 million exemption. An attorney should review and update the plan to reflect current law.

Do I need a credit shelter trust if my estate is under $15 million?

Not necessarily for federal estate tax purposes. However, if you live in a state like New York with a lower exemption and no portability, a credit shelter trust can still save your family significant money in state estate taxes. The decision depends on your total estate value, where you live, and your long-term goals.

Credit Shelter Trust Explained: How It Protects Your Estate

A credit shelter trust, also called a bypass trust or AB trust, is an estate planning tool that helps married couples maximize their estate tax exemptions. When the first spouse dies, assets up to the exemption amount are placed into an irrevocable trust. The surviving spouse can benefit from those assets during their lifetime, but the trust assets are not included in the surviving spouse’s taxable estate when they die. This structure can shield significant wealth from the 40% federal estate tax. For couples in states like New York, where the state estate tax exemption is far lower than the federal threshold and portability does not apply at the state level, a credit shelter trust remains an important planning tool even in 2026.

How Does a Credit Shelter Trust Work?

A credit shelter trust is typically created through a will or a revocable living trust and activates when the first spouse passes away. At that point, the estate is divided. Assets up to the deceased spouse’s available exemption amount are placed into the credit shelter trust, sometimes called the “B trust” or “family trust.” The remainder passes to the surviving spouse, either outright or into a separate marital trust, sometimes called the “A trust.”

The surviving spouse can use the assets in the credit shelter trust for health, education, maintenance, and support. They may also receive income generated by the trust. But because the trust is a separate legal entity, the assets inside it are not counted as part of the surviving spouse’s estate when they eventually die. This means the trust assets, along with any appreciation, pass to the final beneficiaries free of estate tax.

What Is the Difference Between a Credit Shelter Trust and a Marital Trust?

A credit shelter trust and a marital trust serve different roles, and many estate plans use both together. The credit shelter trust is funded with assets up to the deceased spouse’s exemption amount and is designed to keep those assets out of the surviving spouse’s taxable estate. The marital trust, on the other hand, holds assets that exceed the exemption amount and qualifies for the unlimited marital deduction, deferring estate tax until the surviving spouse dies.

In a traditional AB trust structure, the “A trust” is the marital trust and the “B trust” is the credit shelter trust. Together, they help a couple use both exemptions and defer taxes on any excess. This combined approach has been the foundation of estate tax planning for married couples for decades. For a deeper look at how different trust types compare, see our breakdown of revocable and irrevocable trusts.

Is a Credit Shelter Trust Still Necessary in 2026?

The landscape shifted significantly in 2026. The One Big Beautiful Bill Act permanently raised the federal estate tax exemption to $15 million per individual, or $30 million per married couple. The federal government also allows portability, meaning a surviving spouse can use the deceased spouse’s unused federal exemption by filing an estate tax return.

Because of these changes, many couples with estates under $30 million may not need a credit shelter trust for federal tax purposes alone. However, there are still strong reasons to consider one:

New York has its own estate tax with a much lower exemption (approximately $7.16 million in 2026) and does not allow portability between spouses at the state level
A credit shelter trust locks in the deceased spouse’s exemption and shelters all future appreciation from estate tax
The trust provides creditor protection for assets held inside it
It ensures assets pass to intended beneficiaries, even if the surviving spouse remarries

For high-income couples in New York, a credit shelter trust can save hundreds of thousands of dollars in state estate taxes. Plans drafted before 2026 that include credit shelter trust formulas should be reviewed, because the higher exemption could result in over-funding the trust and leaving the surviving spouse with insufficient access to assets.

What Are the Downsides of a Bypass Trust?

A credit shelter trust adds complexity to your estate plan. The trust requires its own tax return each year, and a trustee must manage the assets and make distributions according to the trust terms. This means ongoing administrative costs.

Another significant drawback is the loss of the step-up in cost basis. Assets that pass through a surviving spouse’s estate typically receive a new cost basis equal to their fair market value at the time of death, which can eliminate capital gains taxes for heirs. Assets held in a credit shelter trust do not get this second step-up. If the trust holds highly appreciated assets, beneficiaries may owe more in capital gains taxes when they sell. For a full explanation of how this works, read our guide on step-up in basis for married couples.

For couples whose estates fall well below the federal exemption, the administrative burden and loss of the basis step-up may outweigh the tax benefits. This is why it is important to evaluate whether a credit shelter trust still makes sense for your specific situation.

What Are Common Mistakes Couples Make With Credit Shelter Trusts?

One of the most frequent errors is failing to update an older estate plan. Many couples created credit shelter trust formulas when the federal exemption was much lower. Under the 2026 exemption of $15 million, those formulas may now direct too much into the bypass trust, leaving the surviving spouse without enough access to liquid assets.

Another common mistake is ignoring state-level planning. In New York, where the estate tax exemption is roughly $7.16 million and the estate tax cliff can cause the entire estate to be taxed if it exceeds 105% of the exemption, a properly structured credit shelter trust is essential for families near or above that threshold.

Couples also overlook the importance of coordinating a credit shelter trust with other estate planning documents. A bypass trust works best when it is part of a larger plan that includes a will, beneficiary designations, and asset titling. If you are starting from scratch or unsure whether your current plan covers the basics, our trust vs will guide explains the core differences and when each applies.

How Does Neptune Help Couples With Credit Shelter Trust Planning?

Neptune’s estate planning service is designed for couples who want to approach these decisions as a team. For a flat rate, Neptune connects you with experienced estate planning attorneys who can assess whether a credit shelter trust fits your situation, especially if you live in a state like New York or California where state-level planning adds another layer.

The platform helps both partners prepare together before meeting with an attorney, so you arrive aligned on goals and informed about your options. Whether you need a simple revocable trust or a more complex structure with credit shelter provisions, Neptune facilitates the process from start to finish.

Conclusion

A credit shelter trust remains one of the most effective tools for married couples who want to protect their estate from taxes, especially at the state level. The 2026 changes to the federal exemption mean that not every couple needs one, but for those with significant assets or exposure to state estate taxes, it can save your family a meaningful amount. Neptune can help you and your spouse work through these decisions together and connect you with attorneys who understand the current landscape.