Will the New Estate Tax Exemption Make the Basic Disclaimer Trust a Thing of the Past?
We live in a time where our estate tax exemption is at an all-time high of $12,920,000 per individual or $25,840,000 per married couple. We expect this number to rise for years 2024 and 2025, with a sunset coming December 31, 2025 whereby estate tax exemptions may be cut back down to $5,000,000 or less. You may not currently have a taxable estate given these all-time highs, your reality may drastically change with the impending sunset and respective slash in exemption amounts. So, you will turn to your estate planning attorney and trusted financial advisors to guide you through the best way(s) to plan to minimize your estate tax liability.
A disclaimer trust is a type of trust that is used by surviving spouses to limit estate tax liability after the passing of the first spouse, which only goes into effect by the surviving spouse electing to disclaim all or a portion of their inheritance. The ultimate benefit with a disclaimer trust is that the assets funded into the trust will not be included in the gross estate of the surviving spouse. Will the benefits of the disclaimer trust provisions continue after the sunset?
The simple answer is that these provisions should be used more once the exemption decreases as more estates will become subject to estate tax liability. The benefit of this type of planning is that the surviving spouse can wait and see what the exemption is at the time of passing of the first spouse and then choose whether or not to disclaim a portion of their inheritance to make use of these provisions. Even more, the surviving spouse will still have access to the assets in the disclaimer as those assets can be used for support of the surviving spouse during his or her lifetime while still being excluded from the survivor’s own estate at passing, including appreciation.
The crux of the issue at hand is whether the disclaimer will be advisable to use upon the passing of the first spouse or not. For that, you will need to seek knowledgeable counsel to advise you of the benefits of disclaimer trust funding and usage.
Do not hesitate to create your planning now to discuss the use of various planning strategies with Tresp Law, APC. Contact us today at (858) 248-2779 to schedule a free consultation with one of our attorneys.
