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What Is a Disclaimer Trust?

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  • Written By: Jim B.
  • Edited By: Melissa Wiley
  • Last Modified Date: 24 September 2014
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A disclaimer trust is a type of trust established by a married couple that allows the surviving spouse to place some or all of the estate's assets into the trust after the death of the other spouse. The main advantage of this type of trust is that it allows the surviving spouse the flexibility to decide whether he or she will need the assets of the estate at his or her disposal. If not, he or she may disclaim the assets and place them into the trust, where they may be distributed to established beneficiaries. Due to the changing nature of estate tax laws, a disclaimer trust can be an effective tool for estate management by wealthy married couples.

In many cases, wealthy couples will use marital bypass trusts to avoid hefty estate taxes. These trusts go into effect after the death of the first spouse and allow the surviving spouse to have access to income gained from the trust along with money needed for necessities. The problem with these trusts is that they put the surviving spouse in the position of having to ask the trustee for any extra money he or she might need from the trust, and the trustee might not necessarily grant this request. Using a disclaimer trust can be a remedy for this situation.

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With a disclaimer trust, the surviving spouse can assess the situation at the time of the other spouse's death to determine how much money he or she might need to live in a desired manner. Such a trust is established in the will of the deceased, and it stipulates that the surviving spouse will inherit the couple's estate. At that time, the surviving spouse then has the option to decide whether to keep all or some of the assets of the estate or to place them within the trust.

Depending on the wealth of the estate and the applicable estate tax laws, the surviving spouse may prefer to keep control of the assets, even if it means assuming the tax burden. By contrast, he or she may decide that the trust will suffice for his or her needs and thus can disclaim the assets of the estate and have them placed in the trust. This trust then becomes the source of payouts to any beneficiaries like children or grandchildren.

Once the surviving spouse disclaims assets into the trust, he or she loses control of them outside of what is stipulated by the trust. For a disclaimer trust to be legal, certain conditions must be met. Usually, the assets have to be disclaimed by the surviving spouse in writing within nine months of the death of his or her spouse. The surviving spouse also must make sure not to receive or use any of the assets of the estate before making the disclaimer.

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