When it comes to estate tax planning, flexibility is the watchword.
A recent article in Investor’s Business Daily recommends an estate planning strategy I have been using with my clients for years, certainly since the 2001 Tax Act was passed. As we are witnessing on Capitol Hill, the pending expiration of that Tax Act is creating a veritable guessing game around the issue of estate taxes.
The strategy involves establishing a Disclaimer Trust in your will or revocable trust, whereby the Disclaimer Trust is funded only if the designated heir (usually a surviving spouse) files a proper qualified disclaimer within nine months of the decedent’s death.
This type of planning gives the surviving heir flexibility to accept or disclaim all or part of an inheritance. With this type of flexibility, decisions can be made to maximize the inheritance and reduce or eliminate an estate tax bite... based on the laws applicable at the time.
For example, there is no estate tax levied this year. So, there may be no reason to disclaim any portion of an inheritance (at least not for estate tax purposes). Next year, however, no one knows for sure what the estate tax rate may be. It could be as high as 55 percent on estate assets in excess of $1 million. [Regardless, like the villain in a teenage "slasher" movie, the estate tax has a nasty tendancy to keep coming back to life!] So, an heir might choose to accept a portion of a large estate, and disclaim a portion. The disclaimed amount would fund the Disclaimer Trust, to be managed and distributed under its terms. The key is to give the surviving heir the chance to make an informed, timely decision.
You can learn more about revocable living trust planning in our December e-newsletter. Be sure to visit our website and subscribe to our free monthly estate planning e-newsletter to keep informed about these and other topics that may impact your planning, especially during these changing times.
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