Which funding approach funds the credit shelter first, with the remaining assets going into the marital trust?

• A. Fractional share formula
• B. Reverse marital formula
• C. Special needs trust
• D. Up-front marital formula

Answer: (D)

In two-trust planning at the first spouse’s death, the order in which assets are allocated between the credit shelter (bypass) trust and the marital trust determines how much of the estate tax exemption is used and how much can pass tax-efficiently to the survivor. The up-front funding approach is designed to fund the credit shelter trust first, using the deceased spouse’s unused estate tax exemption, and then place any remaining assets into the marital trust. This sequencing maximizes the use of the exemption to shelter assets from federal estate tax, while preserving assets in the marital trust for the survivor with the marital deduction. The term in some materials for this sequencing is “up-front formula,” and it contrasts with methods that fund the marital trust first or split assets by a fixed fraction regardless of the exemption amount.