Flexible Tax Planning Tool: Wills With Disclaimer Trusts

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A summary of “Disclaimer Wills” or “Disclaimer Trusts” as part of a Pennsylvania estate plan.

A “Disclaimer Will”, often described as a “Disclaimer Trust”, is a versatile estate planning tool that can be executed to benefit couples whose combined estates are approaching or surpass the life time exemption amount for federal estate tax, leading to substantial tax savings to the estate of the making it through partner. Presently, the exemption amount for 2009 is $3.5 million, and in 2011, the exemption amount will be $1 million. (There is presently no federal estate tax in 2010.) This estate planning tool can efficiently double the exemption quantity by preserving the very first to pass away partner’s exemption through usage of a trust.
The Disclaimer Will is a standard Will with a trust arrangement that an enduring spouse can choose to make use of if the enduring partner thinks that his/her estate could be subject to federal estate tax upon his/her death. The Disclaimer Will normally offers an outright marital reduction bequest of the whole residuary estate to the enduring spouse, and will further supply that if the making it through spouse wishes to disclaim the bequest (in entire or in part), the disclaimed property will be entered a trust for the advantage of the surviving spouse. The trust will shelter the exemption equivalent of $3.5 million (for 2009) or $1 million (in 2011) from estate tax. This can lead to a big estate tax savings.

For example, presume Harry and Wendy are a married couple with two kids. Their combined estate is $1.5 million. In 2011, if Harry dies prior to Wendy, without a Disclaimer Will, Wendy will have an estate of $1.5 million (there is no federal estate tax for transfers in between spouses). Upon Wendy’s death, assuming her Will disperses her entire estate to her kids, $1 million will pass to the kids tax-free through her lifetime exemption. The remaining $500,000.0, the amount exceeding her exemption limitation, will go through federal estate tax. Assuming a tax rate of 55% on that quantity, the estate would be accountable for paying $275,000.00 in federal estate taxes. The net estate passing to the kids is $1,225,000.00.
If, however, Harry and Wendy set up disclaimer Wills and Harry passes away initially, Wendy can choose to “disclaim” her interest in some or all of the $1.5 million estate. If she disclaims $500,000.00, the disclaimed quantity of $500,000.00 would instantly be placed in trust for Wendy’s advantage. Upon Wendy’s death, her $1 million estate would pass tax-free to the children through her life time exemption and the trust quantity of $500,000.00 would likewise pass tax-free to the kids. The net estate passing to the children is $1,500,000.00.

The Disclaimer Will provides the enduring spouse the flexibility to develop a comfy monetary situation and permit for a considerable tax savings. Couples who believe that the Disclaimer Will can benefit them should seek the help of a knowledgeable estate planning attorney.


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