You may have heard that using tax-planning vehicles such as marital deduction gifts and bypass trusts within your estate plan can be a great way to save wealth transfer taxes if your estate exceeds the current exemption amount. What happens, however, if you currently exceed the $3.5 million estate tax exemption threshold but anticipate a reduction in your estate down the road? And what, on the other hand, should you do if you are below the exemption amount but you are expecting a future increase in assets?
If such circumstances apply to you, it is important to discuss with your estate planning attorney the use of contingent trusts. Utilizing mechanisms such as qualified disclaimers will allow a surviving spouse to reassess the couple’s financial situation at the time of the first spouse’s death, and do a bit of post-mortem planning if necessary. Thus the use of contingent trusts is a beneficial mechanism of providing flexibility for a surviving spouse when there isn’t a clear-cut tax picture.
The typical structure, for example, of a contingent bypass trust is simple: A Will is drawn to pass all property to the surviving spouse. Provisions are included within the Will to provide for a bypass trust to receive any property that may be disclaimed by the surviving spouse. On the death of the first spouse, the surviving spouse will assess the couple’s assets and decide whether to accept his or her inheritance outright, or whether it would be beneficial to disclaim assets up to the exclusion amount to avoid estate tax exposure. Any disclaimed amount will flow into the bypass trust and be administered pursuant to the trust provisions in the Will.
The Texas Probate Code outlines certain requirements for a disclaimer to be “qualified.” For example, the disclaimer must be filed within nine months of death, and before any benefits of the disclaimed property are accepted. For more information on disclaimers, we invite you to review the “Disclaimers” section of this website.
There are certain caveats to be aware of when passing disclaimed property into a bypass trust, so it is vital to thoroughly discuss your options with a qualified estate planning attorney. We invite you to visit the experienced Houston Estate Planning attorneys at Garg & Associates to learn more about the planning techniques available to your specific situation.
We invite you to contact us for a consultation. Call Garg & Associates, PC at 281-362-2865 or complete our contact form.