Serving Clients Throughout Wisconsin & Illinois 

Preserving Your Wealth Using a Disclaimer Trust

As autumn approaches, many Americans with a high net worth are wondering whether Congress will act to keep the current federal estate tax exemption of $5.12 million per individual from returning to $1 million at the end of the year. Additionally, estate taxes above the exemption are slated to rise to 55 percent from the current rate of 35 percent. Although many believe Congress will act to extend the current exemption or at least raise the tax ceiling above $1 million following the presidential election, there is one simple step a married couple can take to preserve their combined wealth now, a disclaimer trust.

A married couple with a moderately high net worth may choose to establish a disclaimer trust in order to pass on a larger portion of assets without paying estate taxes. A so-called “wait and see” trust can offer such individuals a simple and flexible approach to maintaining control over assets without the hassle of extensive paperwork and tax filings. A disclaimer trust allows a surviving spouse to refuse a portion of a deceased spouse’s assets in an effort to preserve his or her federal estate tax exemption. Instead of gaining access to all assets through the marital exemption, a portion of the decedent’s assets are instead placed into a trust that is considered to be part of his or her estate. By using such a trust instrument, assets may pass tax-free to the couple’s children or other heirs upon the death of the surviving spouse up to the couple’s combined estate tax exemption. Additionally, the surviving spouse maintains the option to benefit from any income generated by a disclaimer trust and access the principal of the trust if it becomes necessary.

If the estate tax ceiling is raised to a desirable level before one member of a married couple dies, no action may be required on the part of a surviving spouse. However, if the level returns to $1 million, a surviving spouse has the ability to avoid up to $550,000 in federal estate taxes for the couple’s heirs by using a disclaimer trust. For the “wait and see” trust to be effective, however, a surviving spouse must disclaim any assets within nine months of his or her partner’s death. Additionally, the survivor may not accept any of the disclaimed assets, even unintentionally. In order to avoid potential disclaimer trust mistakes, a surviving spouse should contact an experienced trusts attorney for advice.

To discuss your estate with a hardworking Estate Law Partners, LLC, attorney, we invite you to request a consultation. Our skilled attorneys are available to answer your questions and help you create a comprehensive estate plan that is right for you. We help clients with trusts, probate matters, wills, powers of attorney, health care documents, and many other estate planning tools.

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