A credit shelter bypass trust is funded with the full exemption amount with the wife as income beneficiary and the children as remainder beneficiaries. What is the primary purpose?

• A. To provide for the wife during her life and leave the remainder to the children.
• B. To maximize the spouse's investment return.
• C. To avoid any estate tax at all costs.
• D. To give the spouse complete control over the remainder.

Answer: (A)

This question hinges on how a credit shelter bypass trust functions. The key idea is to use the deceased spouse’s unused estate tax exclusion to fund a trust that stands apart from the surviving spouse’s personal estate. The surviving spouse can receive income from that trust during life, but the trust assets are not counted in her estate, and after her death the remaining assets go to the children. So the primary purpose is to provide for the wife during her life while ensuring the remainder goes to the children, preserving wealth for the next generation and reducing potential estate taxes on the transfer.

The other ideas miss the main point: maximizing investment returns isn’t the primary aim; while tax efficiency is a benefit, the phrase “at all costs” is too absolute and not the trust’s purpose; and the spouse does not have complete control over the remainder—the children are the remainder beneficiaries.