Your Guide to a Credit Shelter Trust

The problem, and the solution

What a credit shelter trust is

A credit shelter trust is a trust that comes to life when the first spouse dies. It holds that spouse’s half of the community (and any separate property), keeps it working for the surviving spouse, and then passes it to the children without being taxed a second time.

Think of it as a locked box with a window.

At the first death, the deceased spouse’s half goes into the box. The surviving spouse can reach through the window for income and for money needed for support, maintenance, education and medical expenses, and can even hold the key as trustee. But because the box is not in the survivor’s name, it is not counted in the survivor’s estate at the second death, no matter how large it has grown, and it cannot be claimed by a new spouse or a creditor.

Louisiana families have long done something similar with a usufruct: the survivor gets the use of the property for life, and the children own it underneath. The trust does the same job with more control, and it is what federal tax law expects to see. This guide explains both so you can choose.

Words you will see in this guide

Why Louisiana couples use one

There is no Louisiana death tax. Louisiana’s inheritance tax stopped applying to deaths after June 30, 2004 and was repealed in 2010; the gift tax was repealed in 2008. The only death tax that can touch a Louisiana family is the federal estate tax, and it applies only to estates over $15,000,000 per person (2026). Gifts between spouses are never taxed, so the first death of a married couple never produces tax.

Only your half passes. Because each spouse already owns half of the community, your spouse’s half is already your spouse’s, with a fresh income tax basis at your death. What the plan controls is your half.

Portability is good, but it has three holes. Federal law lets your executor file a return after your death and hand your unused exemption to your spouse. But the exemption your spouse inherits is frozen at the amount on the day you died, while your spouse’s own exemption keeps rising. The separate exemption for gifts to grandchildren cannot be handed over at all. And everything your spouse inherits, plus all its growth, is counted in your spouse’s estate.

Growth is the quiet problem. A couple with $16,000,000 today owes no federal tax at either death if both exemptions are used. But if the survivor lives twenty years and the money doubles, the survivor’s estate is $32,000,000 against $30,000,000 of exemption, and the tax on the excess is 40 percent. Put your half in a Family Trust at the first death and its growth is never counted.

Usufructs, remarriage, and forced heirs

The usufruct and its limits. If you die without a will, your spouse automatically gets a usufruct over your half of the community, but it ends if your spouse remarries. A will can make the usufruct last for life and cover separate property too, and federal law accepts a lifetime usufruct for the marital deduction. But a usufruct over cash and other consumables makes your spouse the owner of that money, owing the value to the children only at the end; it gives the children no say while your spouse is alive; and if a forced heir is not your spouse’s child, that child can demand security. The trust does the same job with a trustee, written rules, and no security bond.

Remarriage, lawsuits, and second marriages. If your spouse remarries, your half can end up with the new spouse. If your spouse is sued or goes into a nursing home, your half is exposed. If this is a second marriage, a plan that leaves everything to the survivor depends on the survivor’s goodwill toward your children. The Family Trust removes all of that from the survivor’s hands without taking anything from the survivor’s life.

Forced heirs. If you have a child who is 23 or younger, or a child of any age who is permanently disabled, that child is guaranteed a share of your estate no matter what your will says. A trust can hold that share, but only on terms Louisiana law spells out. We build those terms in so the plan is not rewritten by a court.

The figures in this guide are the 2026 figures published by the Internal Revenue Service and the Louisiana Department of Revenue. They change every year.

How it works, step by step

Who can be trustee

Your spouse. Most of our clients name the surviving spouse as trustee of both trusts. Louisiana law expressly allows a trustee to be a beneficiary, and federal law allows it as long as the spouse’s power to take principal for herself is limited to support, maintenance, education and medical expenses. Louisiana’s Trust Code uses almost the same words, and our documents say it expressly.

A co-trustee for the rest. We name an independent co-trustee (an adult child, a trusted friend, an accountant, or a bank) for two kinds of decisions the spouse should not make alone: distributions beyond the support standard, and the tax elections at the first death. Your spouse stays in charge of the day-to-day.

What makes a good trustee

• Organized enough to keep the trust’s money separate from personal money and file a tax return each year
• Honest, and comfortable saying no to a relative
• Likely to be around, with a named backup
• Willing to call us or an accountant rather than guess

What the trustee does

The trustee’s protection. The trustee can hire an investment adviser and an accountant, and the trust pays for them. A trust worth less than $100,000 can be wound up with the beneficiaries’ consent without going to court. Because a Louisiana trust cannot be changed by the beneficiaries’ agreement alone, we reserve amendment powers in the document so administrative and tax problems can be fixed later without a court.

How the surviving spouse lives after the first death

This is the question every couple asks: will my husband or wife be all right? Here is what changes and what does not.

The marital portion, and what changes

The marital portion

Louisiana gives a surviving spouse who is left poor compared to the deceased spouse a right to claim a share of the estate (up to one-fourth, capped at $1,000,000). A plan that gives the survivor income for life from both trusts satisfies that right, so it is not a concern in a well-built plan.

What changes

• The Family Trust and Marital Trust have their own tax ID numbers and file their own income tax returns each year (income paid to the survivor is taxed on the survivor’s return).
• The survivor cannot give the Family Trust away, put it in a new spouse’s name, or leave it to anyone outside the group you both chose.
• Assets in the Family Trust do not get a second basis step-up when the survivor dies. The survivor’s own half already got its step-up at the first death, and we place assets so the cost is as small as possible.

The Landrys of Lafayette

Mr. and Mrs. Landry of Lafayette own a home, farmland, mineral interests, investments and retirement accounts worth $24,000,000, all community property. This is a second marriage for Mr. Landry, who has a 20-year-old son from his first marriage. Mr. Landry dies in 2026. Mrs. Landry’s half, $12,000,000, is already hers. Mr. Landry’s half, $12,000,000, is divided: one-fourth, $3,000,000, goes into a legitime trust for his son, because the son is a forced heir; the remaining $9,000,000 goes into the Family Trust.

Mrs. Landry is trustee of the Family Trust with Mr. Landry’s brother as co-trustee, keeps living in the house, draws the income, and uses principal when she needs it. She lives another twenty years and the Family Trust grows to $18,000,000. When she dies, her own estate is covered by her own exemption, the Family Trust is not taxed at all, and it passes to Mr. Landry’s son as he directed.

The son received the income he needed from his legitime trust while he was young and the principal outright later.

Two couples, side by side

The savings depend on how much you own, how fast it grows, and how long the survivor lives. These examples use the 2026 federal exemption of $15,000,000 per person, a 40 percent tax rate, community property, and assets that grow 50 percent between the two deaths.

Four ways to plan

Most of our Louisiana clients in a first marriage with no forced heirs choose the “decide later” plan with portability. Second marriages, families with forced heirs, larger estates, and families planning for grandchildren choose the first plan.

Your children under 24: forced heirs

Louisiana is the only state that guarantees certain children a share of a parent’s estate. If you have a child who is 23 or younger when you die, or a child of any age who is permanently unable to care for himself or manage his affairs (including a child with a diagnosed inherited condition that may later cause that), that child is a forced heir.

The share. One forced heir is entitled to one-fourth of your estate; two or more share one-half. The share is never more than what the child would receive with no will. For community property, the fraction applies to your half. Life insurance and retirement accounts are left out of the calculation, but anything paid from them to the forced heir counts toward the child’s share.

The share can be held in trust, on strict terms. The trust must pay the child enough income for health, support, maintenance and education after counting what the child already has; it may not put other conditions on the share; it may not last longer than the child’s life; no principal from the share may go to anyone else; and the principal must be handed to the child free of trust when the trust ends. A spendthrift clause is allowed. Your spouse may be given the income or a usufruct over the share for life. If any of these terms is missed, a court rewrites the trust.

How we handle it. The plan sets apart each forced heir’s share in its own trust with exactly these terms, and the rest of your half goes into the Family Trust under your ordinary terms. Once the youngest child turns 24 (and no child is disabled), the forced heir rules no longer apply and the plan simply runs as a Family Trust. We review this with you at every planning meeting as the children get older.

What goes in the Family Trust and what stays out

At the first death the trustee chooses which assets fill the Family Trust and which go to the Marital Trust or the survivor. Because Louisiana community property is split in half at the first death, the trust lets the trustee place whole assets rather than half of each. The choice matters for income tax, because Family Trust assets do not get a second basis step-up at the survivor’s death.

Every family’s mix is different. Our trustee instruction letter tells the trustee how to place your assets at the first death, and the trustee can swap assets between the trusts later within limits.

Frequently asked questions

Things this trust does not do

We would rather you hear these from us now than be surprised later.

• It does not save Louisiana tax, because there is none. Its tax value is federal only, and only for estates that may exceed the exemption.
• It does not touch the survivor’s own half of the community. That half was always the survivor’s.
• It does not reduce tax while you are both alive. It works at the first death.
• It does not override forced heirship. A forced heir’s share is set apart first, on the terms Louisiana requires.
• It does not give the Family Trust assets a second basis step-up at the survivor’s death. We manage this by choosing which assets go in.
• It does not remove the income tax returns. Each trust files a short return every year after the first death.
• It does not protect against a nursing-home spend-down for the spouse who created it. That is Medicaid planning, which is a separate conversation.
• It does not replace a federal portability election. We still file the federal return at the first death.
• It does not work if your assets are not titled to the living trust, the extract of trust is not recorded in each parish, or accounts do not name the trust as beneficiary. Funding is the client’s job with our written instructions, and we check it at every review.

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