The marital disclaimer trust resembles a credit shelter trust (aka AB-Trust): Assets placed into the trust are generally not counted towards the estate of the surviving spouse. The remaining beneficiaries receive the assets free of estate-tax when the surviving spouse dies. Unlike most AB-Trusts, the use of a marital disclaimer trust is not automatic. It needs to be elected by the surviving spouse after the death of the first spouse. This provides valuable flexibility.
As said, the disclaimer trust is only funded if the surviving spouse so decides. To do so, the spouse refuses to accept the direct distribution of certain assets, instead theses assets are placed into a previously established trust for the benefit of, for example, the children or grandchildren. Only spouses have the option of being able to disclaim assets by moving them into an irrevocable trust.
For whom is a disclaimer trust as a tax savings strategy relevant?
When estate planning takes place, there may be uncertainty about the ultimate size of the assets to be transferred and the then prevailing tax laws regarding the estate tax exemption. In this case it may be a good estate planning strategy to establish a marital disclaimer trust to give the surviving spouse the flexibility to take advantage of the opportunity to avoid estate taxes. The surviving spouse disclaims his or her inheritance and places the assets into trust for children or other beneficiaries. The spouse can be given rights to income for life and even distributions of principal if needed for reasonable health care, maintenance, and support needs. The spouse can even act as trustee of this trust.
