Part II: What Happens After I’ve Updated My Estate Planning Documents to Include a Disclaimer Trust?

So, if you’ve done your homework and have been proactive by already creating your estate plan to protect your loved ones, what happens after your spouse passes away?

When you have a Disclaimer Trust in your estate planning documents, how do you ensure that you are making the right decisions? Also, when and how does it go into effect?

In order for a Disclaimer Trust to be effective for tax purposes, the surviving spouse must file a disclaimer within nine months from the date of death of the first spouse or before accepting the assets. Note: This is a bit complicated so be sure to consult with your estate planning advisers upon the death of a spouse.

Please note that the funding of a Disclaimer Trust is always optional. The spouse must “activate” the trust and it will not get funded unless the surviving spouse files a qualified disclaimer pursuant to federal and state rules.

How does one file a qualified disclaimer? An important caveat is that the IRS and state laws have a tendency to create elaborate and confusing rules for taking advantages of tax exemptions and credit. The filing of a disclaimer is no exception.

That’s why it’s important to consult with an attorney knowledgeable in trust and estate laws because you don’t want to inadvertently disqualify yourself from being able to take advantage of these tools in your estate plan, resulting in you having to pay more taxes to the government.

Below are some examples of things you need to have to do to make sure you file a qualified disclaimer:

  1. Don’t take possession of the property before you file a disclaimer;
  2. You cannot direct where the disclaimed property should go;
  3. You must make sure that you comply with all state laws on disclaimers;
  4. Don’t disclaim too much of the assets as well because it might trigger an estate tax on the estate of the first spouse to die;
  5. File it within nine months after the death of your spouse.

Each person’s circumstances are unique and that is why it is critical to consult with an attorney knowledgeable on these matters so that you don’t pay the government more money in taxes.

Please note that a Disclaimer Trust plan is not always the right fit for everyone. It’s important to have a conversation with your estate planning attorney to make sure that your wishes are accurately reflected in your estate planning documents.

If you already know you want this, call Lisa, Tammy or Kara at (610) 933–8069 for an appointment and pricing.                                                                                                                                                      

 

David M. Frees, III
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Attorney, Speaker and Author
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