Versatile Tax Planning Tool: Wills With Disclaimer Trusts

An introduction of “Disclaimer Wills” or “Disclaimer Trusts” as part of a Pennsylvania estate plan.

A “Disclaimer Will”, often referred to as a “Disclaimer Trust”, is a flexible estate planning tool that can be executed to benefit married couples whose combined estates are approaching or exceed the lifetime exemption quantity for federal estate tax, resulting in substantial tax cost savings to the estate of the surviving spouse. Presently, the exemption quantity for 2009 is $3.5 million, and in 2011, the exemption quantity will be $1 million. (There is presently no federal estate tax in 2010.) This estate planning tool can effectively double the exemption amount by protecting the very first to pass away partner’s exemption through usage of a trust.
The Disclaimer Will is a basic Will with a trust arrangement that an enduring spouse can choose to make use of if the making it through partner thinks that his/her estate might be based on federal estate tax upon his/her death. The Disclaimer Will generally attends to an outright marital reduction bequest of the entire residuary estate to the surviving partner, and will further supply that if the enduring spouse dreams to disclaim the bequest (in whole or in part), the disclaimed property will be passed into a trust for the benefit of the making it through partner. The trust will shelter the exemption equivalent of $3.5 million (for 2009) or $1 million (in 2011) from estate tax. This can lead to a big estate tax savings.

For example, presume Harry and Wendy are a couple with 2 children. Their combined estate is $1.5 million. In 2011, if Harry passes away before Wendy, without a Disclaimer Will, Wendy will have an estate of $1.5 million (there is no federal estate tax for transfers between partners). Upon Wendy’s death, presuming her Will distributes her entire estate to her kids, $1 million will pass to the children tax-free through her lifetime exemption. The remaining $500,000.0, the amount exceeding her exemption limit, will be subject to federal estate tax. Presuming a tax rate of 55% on that amount, the estate would be accountable for paying $275,000.00 in federal estate taxes. The net estate passing to the children is $1,225,000.00.
If, however, Harry and Wendy set up disclaimer Wills and Harry passes away first, Wendy can elect to “disclaim” her interest in some or all of the $1.5 million estate. If she disclaims $500,000.00, the disclaimed amount of $500,000.00 would immediately be put in trust for Wendy’s advantage. Upon Wendy’s death, her $1 million estate would pass tax-free to the kids through her life time exemption and the trust quantity of $500,000.00 would also pass tax-free to the children. For that reason, the net estate passing to the children is $1,500,000.00.

The Disclaimer Will supplies the enduring spouse the versatility to produce a comfy financial situation and enable a significant tax savings. Married couples who think that the Disclaimer Will can benefit them must look for the assistance of an experienced estate planning attorney.