"Put not your trust in money, but put your money in trust."
Oliver Wendell Holmes, Sr.


Disclaimer Wills

A disclaimer Will is a useful estate planning  tool which provides flexibility while estate tax laws remain in flux. Typically married couples want the surviving spouse to have as much wealth as he or she needs throughout his or her lifetime. Most Wills direct the appointed Executor to administer the terms of the Will, terms which are set in stone. Often the Will instructs the funding of a bypass (or credit shelter trust) before giving the balance to the surviving spouse. The bypass trust is funded with the maximum available estate tax exemption (currently $3.5 million). The terms of the trust are usually for the benefit of the surviving spouse and/or children to be paid ultimately to the children upon the surviving spouse’s death.

A disclaimer Will does not force the creation of a bypass trust. Rather, it leaves the entire estate to the spouse but gives the spouse a disclaimer right allowing the surviving spouse to elect to transfer all or a portion of the available estate tax exemption to fund the bypass trust after the death of the first spouse should it makes sense at that time. Upon the death of the first spouse, the surviving spouse has 9 months to disclaim a portion of the estate.

Rising lifetime exemptions mean that traditional Wills which create mandatory bypass trusts are not necessarily what the testator would have wanted. Currently, the estate tax exemption is $3.5 million dollars (it used to be only $600,000). Suppose a husband dies with an estate worth $2.5 million dollars. Under a traditional Will as described in the first paragraph, the entire estate would be held in trust for his wife during her lifetime and she would receive nothing outright. The husband believed the trust would be funded with $600,000 (the exemption when the Will was drafted), and that his wife would receive $1.9 million. A disclaimer Will allows the surviving spouse to decide how much of the exemption he or she wants to use at the time of the first spouse’s death. This is often more practical than forcing the full exemption. Assuming rising estate tax exemptions, forcing the use of the bypass trust may not be what the decedent would have wanted.

A disclaimer is also a flexible way to maneuver around the state estate tax. Many states have de-coupled from the federal estate tax system, and impose a separate estate tax. For example, New York’s exemption remains at $1,000,000. This means that using the entire federal exemption of $3.5 million will result in a New York estate tax of over $200,000 on the additional $2.5 million of federal exemption. If the spouse decides to use only $1,000,000 of exemption, the state estate tax can be avoided.

Whether a disclaimer Will is right for you depends on your individual facts and circumstances.


If you have any questions regarding this matter or any other estate planning techniques, please contact a Maurice Kassimir & Associates, P.C. Trusts & Estates attorney or e-mail us: sklawyers@skpclaw.com.

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