The exemption sunset and the enduring value of the disclaimer trust.

By Tresp, Day & Associates · January 3, 2024

For years, the very high federal estate-tax exemption meant fewer families faced estate tax, and some concluded that tax-driven trust planning was unnecessary. With the exemption scheduled to fall substantially, that conclusion is worth revisiting, and it highlights why flexible tools matter when the law itself is a moving target.

What is changing

Under current law the elevated exemption is set to sunset, cutting the per-person amount roughly in half. Estates that comfortably fit under today’s exemption could face tax under tomorrow’s. Because the outcome depends on future legislation, planning that can adapt is more valuable than planning locked to a single assumption.

How a disclaimer trust helps

A disclaimer trust builds in a decision point. Rather than forcing assets into a bypass trust at the first spouse’s death, it lets the surviving spouse “disclaim” some or all of the inheritance into a trust, up to nine months later, with the benefit of knowing the actual estate size and the then-current law. Shelter more if the exemption has dropped; keep it simple if it hasn’t. That optionality is exactly what you want amid legislative uncertainty.

Not just about tax

Even setting tax aside, trusts that receive a spouse’s share can add creditor protection and control, keeping assets protected for the surviving spouse and, ultimately, the children. For families focused on protection as well as tax, that combined benefit endures regardless of where the exemption lands. Tresp, Day & Associates helps couples build plans flexible enough to hold up as the law changes.