Disclaimer Trusts

A problem some estates run into is that tax laws have changed between the time when the estate plan is created and when a person dies.  This problem can be somewhat mitigated with a special kind of trust.

A primary goal for many people in estate planning is to minimize any tax burdens their estate might have.  This means bringing the size of an estate down to keep it under any federal or state estate tax exemption limits.

What happens if the estate tax exemption limits are lowered?  The estate plan has to be changed.

Many people do not do that because they don’t know about the changes in the law, the value of their assets increased more than they thought, or they just did not get around to making changes.

This can be a risk for many estates.  There is, however, a way to mitigate this risk as the Wills, Trusts & Estates Prof Blog discusses in "How to Use Trust Disclaimers in Estate Planning."

The idea takes advantage of a little known part of estate law that allows an heir to disclaim any inheritance or portion thereof.  This means that an heir can say he or she does not want the inheritance and it can then be given to the next person in line for it.

A trust can be written in such a way that a surviving spouse can disclaim any assets and the next "person" in line to receive them would be the trust.

This approach allows for any large assets to be disclaimed into the trust to bring the estate down below the estate tax exemption limits.

These trusts do have their risks and drawbacks, however.  If you are interested in a disclaimer trust, talk to an estate planning attorney about the pros and cons.

Reference: Wills, Trusts & Estates Prof Blog (August 24, 2017) "How to Use Trust Disclaimers in Estate Planning."


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