2010 has been an unusual year for estate planning…..and it’s only August. We await word from Congress as to what the new estate tax laws will be next year and attempt to plan for clients while there is presently no estate tax. Unfortunately I am not a soothsayer (I kind of wish I were sometimes, but I digress) and so we will all have to wait and see where the new exemption amount and tax rates will fall.
If you are doing some estate planning this year however, it is a good idea to discuss the use of a flexible plan that incorporates a disclaimer trust with your tax professional. Trusts come in all shapes and sizes to fit your specific needs. Unlike most trusts which require decisions when drafted however, a disclaimer trust provides an opportunity to make a decision later, when the heirs of an estate will have all the facts about the level of exemption and applicable tax rate.
In a nutshell, the way a disclaimer trust works is each spouse will name the other spouse as the beneficiary of their estate. Then, language will allow the surviving spouse to disclaim some, all, or none of the estate passing to them at the time the first spouse dies. This allows the surviving spouse to maximize their tax benefits and minimize the effects of over- or under-funding a trust.
While there is no one-size-fits-all approach in estate planning, a plan which gives you the flexibility to make a decision in the future when you have all the facts seems to be a good choice.
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