Disclaimer planning. a wait and see approach

Changes in the law, including those relating to the surviving spouse’s ability to “port” the decease spouse’s unused exemption, have created an opportunity for practitioners to utilize flexible strategies for families regarding shielding family assets from being subjected to estate taxation.

Prior to portability, the estate ordinarily had to implement a static a/b type trust strategy of either a marital deduction/qtip trust in combination with a credit shelter trust in order to make use of the first spouse’s exclusion. If this formula was not used, use of the first spouse’s exclusion was forever lost.

The ability of the surviving spouse to port the dsue of the first spouse allows for a significantly more flexible planning approach enabling a couple to take a wait and see approach to estate planning. Strong consideration should be given to the use of a disclaimer trust strategy in lieu of an a/b or b/a marital/ shelter trust which requires a fixed funding formula which often results in unforeseen and unwanted outcomes, including overfunded credit shelter trusts and a resulting lack of resources available for the surviving spouse.

With the use of a disclaimer trust, the surviving spouse can choose a portability strategy relying on the unlimited marital deduction upon the first spouse’s demise, or she can disclaim all or part of the devise to her, which is then directed to fund the credit shelter trust in order to utilize the first spouse’s exemption amounts. These strategies are not mutually exclusive and they can be used in conjunction depending on the value and nature of the assets comprising the gross estate and the potential exposure to estate taxes in the estate of the first spouse or in the surviving spouse’s estate. This provides the surviving spouse the greatest flexibility and the greatest opportunity for the estate planner and family to maximize both estate and income tax savings. This alleviates the former concern wherein funding strategies which no longer make sense in light of the large increase in exemption amounts over the years, and which resulted in forcing clients to modify their estate planning documents in their entirety.

We can assist you in creating an estate plan that fits you and your family’s particular needs. Whether this is through the use of revocable or testamentary trusts, pour over wills or durable powers of attorney, lady bird deeds, will depend on your particular circumstances.