Disclaimer Trust Wills Article
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Legal Disclaimer


The Problem

Families with total assets, including life insurance, home and retirement funds, in excess of $2,000,000.00 are going to have to pay federal estate taxes at a rate that is approximately 50% on any amount over $2,000,000.00 on the death of the surviving spouse -- unless they plan to avoid or minimize the federal taxes. Minnesota estate taxes are payable for the estates in excess of $1,000,000.00.  Wisconsin estate taxes are payable for estates in excess of $675,000.00.  In this regard it has been said time and time again that, estate taxes are "the only voluntary taxes."  In other words, with proper planning the payment of estate taxes can be entirely avoided.

The Text Book Solution

The classic text book solution for families with total assets in excess of $2,000,000.00 is the use of a Credit Shelter Trust (also known as a B Trust or a Family Trust).  The Credit Shelter Trust is set up so that upon the death of the first spouse an amount - designated by formula or otherwise - is placed in the Credit Shelter Trust.  The amount put in the Credit Shelter Trust is included in the federal taxable estate of the first spouse to die but if the amount placed in the Credit Shelter Trust is $2,000,000.00 or less, there would be no federal tax payable.

The surviving spouse's rights to the amounts in the Credit Shelter Trust are limited as prescribed by federal tax law so that the assets in the Credit Shelter Trust are not included in the taxable estate of the surviving spouse.  Typically this means that the surviving spouse has the right to get only the income from the Credit Shelter Trust.  If more money is needed the surviving spouse has to ask the Trustee - a bank or children - for more money and demonstrate that he/she needs the money.

The Credit Shelter Trust estate plan technically works very well and allows $4,000,000.00 in total assets to be transferred from one generation to another without federal estate taxes.  This concept is often well received by and works well practically for elderly families who are in their retirement years.

I have found that the Credit Shelter Trust concept is often not well received by and does not work well practically for families in their pre-retirement years.  The problem that arises is that if one spouse dies, the surviving spouse does not want his/her hands tied with respect to their assets.  They simply do not want to have to ask their kids or a bank for money or permission to use their property as they want to.  The bottom line is that they do not want to give up control over what could be a substantial part of their assets.

In short - a lot of my clients would rather risk the possibility of their estate having to pay some estate taxes than give up control of their assets during their life times.

One Solution - The Disclaimer Trust Will

One solution to this problem is the Disclaimer Trust Will.

The Disclaimer Trust Will very simply allows the surviving spouse to decide - after the death of the first spouse - whether he/she wants to give up control of any assets to avoid estate taxes.

The Disclaimer Trust Will in effect says:

1.         Upon the death of the first spouse everything goes to the surviving spouse.

2.         The surviving spouse, however, may disclaim all or a part of the assets the surviving spouse is to receive as a result of the death of his/her spouse.

3.         The assets disclaimed are then put into a Disclaimer Trust -which has the same terms as the Credit Shelter Trust, that is, the surviving spouse retains the right to income for his/her life from the assets placed in the Disclaimer Trust but has to ask the Trustee - a banker or family member - for more money.

The Disclaimer Trust Will concept allows families to take a "wait and see" approach to the estate tax issues (federal and state) and to make decisions based on all facts and circumstances when they are actually known and not try to guess now what will happen in the future.

The flexibility of the Disclaimer Trust Will makes them very popular with a lot of pre-retirement families.

There are a number of technical rules and requirements involved with the use of disclaimers so, as with any estate planning tool, they do not work for everyone, but they do provide an alternative that is useful and attractive for many families.  As always, before proceeding with a Disclaimer Trust Will or any other estate planning you should consult with an experienced estate planning professional.


A Disclaimer Trust Will allows families to wait and see what actual circumstances are before tying up assets in trusts during the life of the surviving spouse.  If a Disclaimer Trust Will fits a family's situation it works very well.


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