Postmortem disclaimer strategies.

• Author: Kohan, Richard L.

There are numerous procedures and devices that may be implemented to achieve estate planning objectives after a decedent dies. Disclaimers are just one of many techniques that may be used in the postmortem planning context and should be considered as part of the bigger plan.

Disclaimers generally

Pursuant to Sec. 2518, a disclaimer is a written refusal to accept an interest in property. It must be signed and identify the property interest being disclaimed. A disclaimer must be made within nine months of the creation of the interest or the disclaimant's reaching age 21. In addition, it is required that the person making the disclaimer has not received the interest or any of its benefits, and that the interest pass without any direction on behalf of the disclaimant. Disclaimers may be used in the postmortem estate planning context for many purposes.

Disclaimer uses

Increase marital deduction: A disclaimer may be made to increase the marital deduction or to preserve the marital deduction that would otherwise be lost due to drafting errors. For example, consider an estate that is taxable because nonspousal bequests exceed the unified credit amount. By disclaiming the portion in excess of the unified credit amount, the estate may be transformed into a nontaxable estate when the disclaimed assets end up passing to the decedent's spouse. In addition, when nonspouse beneficiaries receive an interest in trust causing the trust to fail to qualify for a qualified terminable interest property (QTIP) election, such beneficiaries may disclaim their interests in such trust in order to qualify the trust for the QTIP election.

Decrease marital deduction: In certain situations, it may be appropriate for a surviving spouse to disclaim bequeathed property in order to reduce the amount of property that qualifies for the marital deduction. For instance, such a disclaimer may provide an opportunity for a decedent's spouse to use an otherwise unused unified credit or generation-skipping tax (GST) exemption. In fact, this strategy is often incorporated by design into certain estate plans in the form of "disclaimer trusts."

Executor commissions: Under certain circumstances in which the surviving spouse is designated as the estate's personal representative, it may be advantageous to reject the associated fees. This may be the case in a nontaxable estate whose sole heir is a surviving spouse. Note that commissions constitute taxable income; bequests, however, do not...