People who are working on estate planning in Michigan may be considering starting a trust to manage assets. There are multiple types of trusts, and each one has its advantages and disadvantages. One type is a credit-shelter trust, which has tax benefits for both your spouse and your children.

According to CNN, a credit-shelter trust is also known as a family trust or bypass trust. The will writer gives money, up to the estate-tax exemption, to the trust. Upon death, the trust is passed to the surviving spouse tax free. One of the biggest benefits of a credit-shelter trust is it remains free of estate taxes throughout its life. This means that the surviving spouse can make wise investment choices and the growth will not be taxed, even when passed on to the children.

According to the University of Miami School of Law, another benefit of a credit-shelter trust is the surviving spouse has a significant amount of control over the trust. The spouse may:

  • Direct investments
  • Withdraw a certain amount for income every year
  • Replace and remove trustees
  • Withdraw property from the trust as it relates to her or his maintenance, health and education
  • Appoint a portion of the trust property to anyone tax free

While withdrawing income for the surviving spouse can be mandated, this typically reduces the amount that would be passed along to descendents. If providing for descendents or other beneficiaries is a goal, then mandated payments should not be granted to the surviving spouse. He or she would still, however, be able to enjoy the other benefits of the trust.