ALI-ABA Course of Study Estate Planning in Depth ... - ALI CLE

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792 VI. Disclaimers by Trustees 49 VII. “Transfer” Disclaimers 50 VIII. Using Disclaimers in Estate Planning 51 A. Applicable Exclusion Trust Funding 51 B. Marital Deduction Trust Funding 52 C. Funding a QDOT 52 D. Planning for Tangible Property 52 E. Funding Charitable Bequests 52 F. Funding Charitable Split Interest Trusts 53 G. Retirement Plans 53 H. Fixing Defective Plans 53 I. Opportunities with Successive Deaths 54 IX. Conclusion 54 Appendix: Selected Disclaimer Provisions from a California Joint Revocable Trust ii
793 Thank You But No Thank You: Advanced Issues in Disclaimer Planning Nancy G. Henderson, Esq.* Henderson, Caverly, Pum & Charney LLP Rancho Santa Fe, California nhenderson@hcesq.com I. Introduction Donees and beneficiaries are not required to accept the benefits of a gift, inheritance, trust distribution or power of appointment; all such benefits can be renounced. Where such a renunciation satisfies the requirements of a “qualified disclaimer” under §2518 of the Internal Revenue Code (“Code”) and applicable Treasury Regulations (“Regulations”), the disclaimer will not result in the imposition of a gift tax upon the disclaimant and may avoid other adverse tax and non-tax consequences as well. Consequently, qualified disclaimers provide both flexibility in estate planning and serve as a valuable tool in post-mortem estate and trust administration. Importantly, the treatment of a disclaimer as “qualified” or “non-qualified” is principally a tax concept. A disclaimer that fails to meet the requirements of a “qualified disclaimer” for federal gift tax purposes (referred to in this Outline as a “non-qualified disclaimer”) can, and in most cases will, nevertheless result in an effective transfer of the disclaimed property, interest or power for state law purposes. This Outline examines the most significant tax consequences of both qualified and non-qualified disclaimers, the requirements of a qualified disclaimer and some of the many uses of disclaimers in estate planning and post-mortem estate and trust administration. II. Tax Consequences of Disclaimers A. Tax Consequences of Non-Qualified Disclaimers. If a disclaimer is a nonqualified disclaimer, the disclaimant is treated as having received the disclaimed property, interest or power from the original transferor and then having transferred that property right or interest, or released such power, to the person who takes it as a result of the disclaimer. 1 If the transfer is gratuitous, then there may be estate, gift or GST tax consequences arising from the disclaimer. If the disclaimer is for consideration, income and capital gains tax consequences must be considered. While non-qualified disclaimers do not enjoy the tax advantages of qualified disclaimers, they are nevertheless important and useful tools to shift assets and property interests in appropriate circumstances. For example, the income beneficiary of a trust could live well beyond the expected term of the trust (and perhaps beyond its usefulness to that beneficiary), 1 See Treas. Reg. §25.2518-1(b). * © Nancy G. Henderson 2009. Ms. Henderson wishes to recognize her friend and mentor, Lynn Hart Muto, now retired, who authorized the use of her 1994 Heckerling Institute paper, Advanced Issues in Disclaimer Planning: Sharpening an Old Tool, as the foundation for this Outline. Ms. Henderson also wishes to thank her associate, Rebecca Lawson for her editorial contribution.
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ALI-ABA Course of Study Estate Planning in Depth ... - ALI CLE

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