When it comes to estate planning in Texas, protecting your family’s wealth is key. A Credit Shelter Trust is an excellent way to ensure your assets are preserved and passed on to your loved ones with minimal tax burden. While Texas residents don’t face state-level estate taxes, the federal estate tax can still significantly impact larger estates. A Conroe, TX revocable living trust lawyer that is licensed in Texas, Kentucky, Pennsylvania, and South Dakota is here to explain how a Credit Shelter Trust works, why it’s particularly important for families in Texas, and how it can help preserve your legacy.
What Is A Credit Shelter Trust?
A Credit Shelter Trust, sometimes called a bypass trust or family trust, is a legal arrangement that helps reduce federal estate taxes. It’s particularly useful for married couples with significant assets. When one spouse passes away, a portion of their estate is placed into the trust, up to the federal estate tax exemption amount. The remaining assets pass to the surviving spouse tax-free under the marital deduction which is a huge reason why you need estate planning.
The trust allows families to take full advantage of each spouse’s federal estate tax exemption, ensuring that assets placed in the trust are not taxed again when the surviving spouse passes away. For Texas families with significant assets, this can mean substantial tax savings and peace of mind.
Why Does A Credit Shelter Trust Matter In Texas?
While Texas does not impose a state-level estate or inheritance tax, the federal government’s estate tax can still apply to larger estates. In 2025, the federal estate tax exemption is $13.99 million per individual, or $27.98 million for a married couple. However, this exemption is scheduled to drop in 2026, potentially to around $6 million per person. For many Texas families, this reduction could result in significant taxes on estates that include real estate, businesses, oil and gas interests, or other substantial assets.
Given the high property values and entrepreneurial spirit in Texas, many families may find themselves unexpectedly subject to federal estate taxes. A Credit Shelter Trust ensures that both spouses’ exemptions are fully utilized, preserving wealth for future generations.
How Does A Credit Shelter Trust Work?
Here’s how a Credit Shelter Trust functions, with an emphasis on how it benefits Texas residents:
1. Setting Up The Trust: Texas couples work with an estate planning attorney to establish a Credit Shelter Trust as part of their estate plan. The trust includes provisions to manage and distribute assets effectively.
2. Funding The Trust: Upon the death of the first spouse, assets equal to the deceased spouse’s federal estate tax exemption are transferred into the trust. For 2025, this amount is $13.99 million. The remaining assets pass directly to the surviving spouse tax-free under the marital deduction.
3. Managing The Trust Assets: The surviving spouse can access income generated by the trust or withdraw funds for specific purposes, such as healthcare or maintenance. However, the assets in the trust are not considered part of the surviving spouse’s taxable estate.
4. Final Distribution: When the surviving spouse passes away, the trust assets are distributed to heirs, such as children or grandchildren, without being subject to federal estate taxes.
Why Is A Credit Shelter Trust Important For Texans?
Texas families often have unique financial situations that make estate planning particularly important:
1. Significant Property Holdings
Texans frequently own large properties, family ranches, or valuable urban real estate. These assets can push the value of an estate above the federal estate tax exemption, especially after the 2026 reduction.
2. Business Ownership
Many Texans are entrepreneurs, owning small businesses or family enterprises. These businesses are often key parts of the estate and may require special planning to ensure they are preserved for future generations.
3. Oil And Gas Interests
Texas is rich in oil and gas assets, and many families benefit from mineral rights, royalties, or investments. These assets can significantly increase the value of an estate, making a Credit Shelter Trust a vital tool.
4. No State Estate Tax
While Texans don’t face state estate taxes, the federal estate tax is still a consideration. A Credit Shelter Trust ensures that Texas families can minimize this tax burden and maximize their legacy.
An Example For Texas Families
Consider John and Maria, a couple from Dallas with a combined estate worth $20 million, including real estate and oil royalties. Without a Credit Shelter Trust, if John dies first, his entire estate might pass to Maria under the marital deduction. While this transfer is tax-free, Maria’s estate would now be $20 million. If the federal estate tax exemption drops to $6 million in 2026, the excess $14 million could face a tax of up to 40%, costing the family $5.6 million.
If John and Maria had created a Credit Shelter Trust, $6 million (John’s post-2026 exemption) could be placed into the trust upon John’s death. This amount would be protected from estate taxes. When Maria passes away, only her remaining assets would be taxed, saving the family millions of dollars.
Benefits Of A Credit Shelter Trust For Texans
1. Federal Estate Tax Savings
By fully utilizing each spouse’s estate tax exemption, a Credit Shelter Trust reduces the federal estate tax burden on Texas families.
2. Asset Protection
Assets in the trust are shielded from creditors, lawsuits, and even risks from remarriage, ensuring the family’s wealth remains secure.
3. Legacy Preservation
A Credit Shelter Trust ensures that valuable family assets, like ranches, businesses, or mineral rights, are preserved and passed down to future generations.
4. Customized Distribution
The trust allows you to control how and when heirs receive their inheritance, ensuring the assets are used responsibly.
Is A Credit Shelter Trust Right For Your Texas Family?
If your estate includes significant assets, such as real estate, businesses, or investments, a Credit Shelter Trust can be a powerful tool to protect your legacy. With the federal estate tax exemption set to decrease in 2026, now is the time to act. A lawyer can direct you on what sort of trust you need from complex trusts to credit shelter trusts.
Working with an experienced Texas estate planning attorney ensures that your trust is tailored to meet your family’s unique needs. They can help you evaluate your assets, navigate federal tax laws, and create a plan that reflects your values and goals.
Final Thoughts For Texas Families
A Credit Shelter Trust is more than just a tax-saving tool — it’s a way to protect your family’s legacy and ensure that your hard-earned assets are passed on to your loved ones. For Texans, who often hold significant property and business interests, this trust can provide peace of mind and financial security for generations to come. By planning ahead, you can take advantage of today’s tax benefits and safeguard your family’s future. Stuart Green Law, PLLC started his own practice in 2021 and has been helping families create their estate plans; contact us today to get started on yours!