August 28, 2025
A key element in many strategic estate plans is a credit-shelter trust provision in the will.
A credit-shelter provision can help dentist practice owners and their families preserve wealth across generations by minimizing or eliminating estate taxes and providing other financial protections.
Sometimes called a bypass or family trust, this provision ensures that both spouses' estate tax exemptions are fully used, helping preserve millions of dollars for your heirs. For dentists, who often accumulate significant estates through practice ownership and personal investments, including this provision is a simple but vital step.
Here we explain what a credit-shelter trust is, why it’s important to include one in your will, and how it works using real-world hypothetical scenarios.
What Is a Credit-Shelter Trust?
A credit-shelter trust is created when the first spouse in a married couple passes away. Instead of leaving all assets outright to the surviving spouse, a portion of the estate, up to the deceased spouse’s estate tax exemption, is directed into the trust. The surviving spouse can still benefit from the trust by receiving income and, under certain conditions, access to principal for needs like health, support, and maintenance.
Here’s the critical point: those trust assets and all future appreciation are not included in the surviving spouse's taxable estate later on. That means they can pass tax-free to children or other beneficiaries.
Without this trust, the deceased spouse’s exemption might be wasted, leaving more of the estate exposed to taxes when the second spouse dies.
Why This Matters for Dentists
Dentists often underestimate the size of their estate. Between the value of a practice (sometimes worth millions), retirement accounts, commercial real estate, and other investments, estates can quickly approach or exceed federal tax thresholds.
The One Big Beautiful Bill Act of 2025 (OBBBA) permanently increased the federal estate tax exemption to $15 million per person, or $30 million for a married couple, starting in 2026. That sounds like plenty, but tax laws can change, states may impose their own estate taxes with much lower limits, and your estate can grow significantly over time.
A credit-shelter provision ensures your estate plan is not dependent on the whims of future tax law changes. It gives you peace of mind that your legacy will remain intact.
Let's consider some real-world hypothetical examples.
Example #1 - Young Couple
A young dentist couple just starting has a net worth of $3 million, including their practice, a home, and retirement savings. They're well below the federal estate tax exemption, so they might think planning for estate taxes isn't necessary yet.
However, here’s the risk: their assets will likely grow substantially. Over the next 30 years, the practice is sold, investments compound, and real estate appreciates. By retirement, their estate has grown to $18 million. Without a credit-shelter trust in place, only $15 million may be sheltered when the second spouse passes away, and the extra $3 million could be taxed at 40%. That's $1.2 million in taxes that could have been avoided.
If the couple had included a credit-shelter provision in their will from the beginning, the exemption would have been locked in at the first death, and all future growth of those assets would have been sheltered as well. By planning early, they avoid scrambling later and give themselves peace of mind knowing their plan is already in place.
Example #2 - Moderate Estate
A couple has an estate worth $12 million today. If the first spouse dies and everything is left to the survivor, no tax is immediately due. But 15 years later, after growth and a practice sale, the estate has doubled to $24 million. If the exemption at that time is $15 million, the survivor's estate will owe estate tax on $9 million, resulting in $3.6 million in tax.
With a credit-shelter trust, the first spouse’s $12 million goes into the trust. The survivor can still benefit, but when the survivor later dies, that $12 million plus all growth (say it’s now $24 million) passes tax-free to the children. The survivor’s personal assets use their own $15 million exemption. Result: $3.6 million in taxes avoided and much more wealth preserved for heirs.
Example #3 - High-Net-Worth
Consider a couple with $20 million in combined assets. Only $15 million can be sheltered at the second death if all assets pass outright to the survivor. The remaining $5 million is exposed to estate tax, resulting in $2 million lost to the IRS.
With a credit-shelter trust, $15 million is set aside at the first death, fully using that spouse’s exemption. The survivor’s own $15 million exemption covers the rest. Result: the entire $20 million passes tax-free to the heirs. This simple step saves millions while still ensuring the surviving spouse has access to resources during their lifetime.
How to Set Up a Credit-Shelter Trust Provision
The good news is that setting up this protection is not complicated. The credit-shelter provision can be built directly into your will or revocable living trust. Here’s how it works in practice:
Adding this provision to your estate documents is a relatively low-cost step with potentially enormous savings. An experienced estate planning attorney can draft the language so that the trust activates automatically when needed.
As always, please talk to your attorney before making any changes to your estate plan.
Key Benefits for Dentists
You’ve worked hard to build your practice and accumulate wealth. Without planning, estate taxes could erode a significant portion of that legacy. A credit-shelter trust provision is one of the simplest, most effective estate planning tools available.
By including this provision in your will or living trust, you ensure that:
Every dentist should review their estate plan to confirm that a credit-shelter trust provision is included. It’s a basic step that offers extraordinary protection, ensuring that the rewards of your lifetime of work go where you intend: your family.
Reminder: Always talk to your attorney before making any changes to your estate plan.
Not sure where to start? Contact us today!
References
Chen, J. (2025, February 22). Credit shelter trust (CST): What it is, how it works, role in estate taxes. Investopedia. https://www.investopedia.com.
Commerce Trust Company. (2024, August 30). Understanding credit shelter trusts versus portability. Commerce Trust Company Insights. https://www.commercetrustcompany.com/insights.
English, R. (2024, August 30). Understanding credit shelter trusts versus portability. Commerce Trust Company. https://www.commercetrustcompany.com/insights.
Frost Brown Todd LLC. (2025, July). One Big Beautiful Bill Act enacts a permanent increase in the estate and gift tax lifetime exclusion amount for 2025 and later years. Frost Brown Todd Tax Law Update. https://frostbrowntodd.com.
Husch Blackwell. (2025, July 14). Estate planning and other tax strategies under the One Big Beautiful Bill Act. Husch Blackwell Legal Updates. https://huschblackwell.com.
Internal Revenue Service. (2024, October 22). IRS releases tax inflation adjustments for tax year 2025 (IR-2024-273). U.S. Department of the Treasury. https://irs.gov.
Matz, K. (2011, June). Seven good reasons credit shelter trusts remain relevant. Journal of Accountancy, 211(6). https://www.journalofaccountancy.com.