Credit Shelter Trusts: The Key to Preserving Oregon’s $1 Million Estate Tax Exemption
If you’re married and live in Oregon, your estate plan may be missing a critical piece. It’s called a credit shelter trust, and it could be the difference between leaving your full estate to your family—or losing a big chunk of it to Oregon estate tax.
Here’s what you need to know.
The Problem: Oregon Doesn’t Do Portability
Unlike the federal system, which allows married couples to combine their estate tax exemptions through something called “portability,” Oregon gives each person just one shot at using their $1 million exemption. If you don’t use it when you die, it’s gone.
That might not sound urgent—especially since there’s no estate tax between spouses—but here’s where it bites:
Let’s say you and your spouse have a $1.6 million estate. If the first spouse dies and everything passes outright to the survivor, there’s no tax at that point. Spouses inherit tax-free.
But Oregon doesn’t let you carry forward the first spouse’s $1 million exemption. So when the second spouse dies with $1.6 million, the state taxes everything above $1 million. That can mean tens of thousands lost—entirely avoidable.
The Solution: Credit Shelter Trusts
A credit shelter trust (also called a bypass trust or family trust) is an irrevocable trust designed to preserve the first spouse’s exemption.
When the first spouse dies:
Their half of the estate (up to $1 million) goes into the credit shelter trust
The surviving spouse keeps their share outright
The credit shelter trust provides support to the surviving spouse—but in a limited, protected way
The key is that the money in the trust is still available, but no longer considered owned by the surviving spouse. That means it’s excluded from their estate when they die.
The result? You’ve now used both spouses’ $1 million exemptions—and passed $2 million tax-free.
How the Trust Works
A typical credit shelter trust:
Is created by the first spouse’s will or revocable trust
Becomes irrevocable upon death
Names a trustee (often the surviving spouse or a third party)
Uses the HEMS standard for distributions (Health, Education, Maintenance, Support)
Pays income to the surviving spouse, with limited access to principal
Distributes the remainder to children or heirs after the second spouse dies
You can also structure this using a joint revocable trust that splits in two when the first spouse dies—one half becomes the credit shelter trust, the other stays revocable for the survivor.
A Note on Flexibility
While credit shelter trusts are irrevocable once created, they aren’t inflexible. You can:
Include a power of appointment to give the surviving spouse some control over final distributions
Appoint a trust protector who can amend the trust in response to future tax law changes
Tailor the terms to meet specific family goals
The goal isn’t to tie your family’s hands—it’s to protect the estate while still meeting real-life needs.
The Critical Step Most People Miss
Even with perfect documents, a credit shelter trust only works if it’s funded. That means:
Titles to assets must allow the estate to “split” appropriately
Beneficiary designations must align with the trust plan
Joint tenancy and payable-on-death accounts need special attention
If everything is left jointly titled or passes by beneficiary designation, the credit shelter trust never gets triggered—and the plan fails.
This is one of the most common mistakes in Oregon estate planning. The language is there, but the assets never flow through it.
Who Needs a Credit Shelter Trust?
Married couples with a combined estate over $1 million
Anyone who owns life insurance, real estate, retirement accounts, or a business
Couples who want to support a surviving spouse while ensuring inheritance for children from a prior marriage
Anyone who wants to avoid paying more estate tax than necessary
Even estates just barely over the threshold can save tens of thousands with the right structure.
Final Thought
Credit shelter trusts are about timing and structure. Oregon gives you one chance to use your exemption. With the right planning, you can make sure it’s not wasted.
At Track Town Law, I help couples design estate plans that actually reflect Oregon’s tax reality—not just boilerplate templates. That includes coordinating titles, beneficiary designations, and funding strategies to make sure your plan works when it matters.
You can learn more about flat-fee pricing, browse more blog posts, or book a free consultation directly at tracktownlaw.com.
If you’ve already done your estate planning but aren’t sure how Oregon tax fits in—or you’ve never had a plan reviewed at all—this is a great place to start.
