[WSBAPT] Disclaimer After IRA Transferred to Surviving Spouse

[Joshua McKarcher]

Okay, I know I’m probably That Clarkston Crank Way Over By Idaho to some of you 😉, but I have a hard time restraining my excitement over the strategy below where disclaimer trusts are involved, so stop reading now if you hate irrevocable trusts or lifetime gifting for medical expenses or phrases like “interested” and “non-interested” trustee; otherwise, consider . . .

If the couple isn’t exposed to federal estate tax, and if the kids or beneficiaries (or even a couple of them) “get it” and will play ball to care for Mom or Dad – and especially where the client like this one appears to be sitting on a boatload of recently stepped-up brokerage assets (!!) – then consider skipping any potential disclaimer arguments, complexity, mistiming, missteps, etc. by having the survivor take the entire interest and promptly gifting an estate-tax-minimizing sum into irrevocable (sub)trusts for the same kids’ benefit as would benefit under the disclaimer trust.

Provide the beneficiaries with limited lifetime powers of appointment for, say, the beneficiaries’ ancestors and descendants or charities; and general death POAs to (as broad as) any person or entity. Boom! More estate tax planning for even a wealthy beneficiary.

The assets aren’t going to get another step-up anyhow; the exact amount gifted by surviving spouse and future decedent into the trust(s) is memorialized in a (very simple) federal gift tax return, leaving a clear paper trail and simple math.

Any beneficiary can instruct the trustee to pay (directly to the provider) an ancestor’s or descendant’s medical or education expenses (with no gift tax return if done properly).

And - bonus! - subtrusts with TINs and properly titled financial accounts are now already in place to receive swiftly any future lifetime gifts that the same surviving spouse may wish to make to keep his or her (perhaps rapidly appreciating) estate around $2M during lifetime.

I know Washington has lovely, simple probate statues and processes that make will-based planning attractive. I do. And this can work within that construct. (Bone thrown.)

But the massive benefits of trust-based planning – available buckets for lifetime gifting that does NOT need to be outright to kids or so limited in usefulness as disclaimer trusts generally are (e.g., weird place for future gifts from survivor; usually more restrictive terms) – can massively benefit Washington clients in the Not Really Rich Risk Range for couples with combined assets of, say, $2.2M to (pick your exact number) $7M/$26M/other.

With the right family, this strategy also provides a wonderful “easing into” the inheritance to come.

Use a firm like Mark Vohr’s or Northwest Trustee or Washington Trust Bank (all providing trust officers not in remote NYC, St. Louis, or Texas offices); or even use an attorney who makes the two simple disclosures required by our rules of ethics, if a client or family (as in my region, sigh) simply refuses to use a Big Scary Trust Company.

Now the beneficiaries have asset protection to boot: the use of an Independent Trustee (meaning “non-interested” under straightforward IRS rules) provides far more robust asset protection than the not-so-protective (hit me; I’m ready) beneficiary-trustee’d HEMS trust -- and can still feature the beneficiary having management (just not distribution) authority over the trust’s assets. (Hint: Fidelity makes this arrangement exceedingly easy with a lovely form the trustee can sign to give online management but zero distribution rights to a beneficiary.)

I’d bet a lot of money that a lot of EP attorneys would be very surprised to know just how easy it is to provide their clients’ beneficiaries such high levels of perfectly reasonable asset protection without costing them massive amounts of fees.

That’s becoming my favored solution to disclaimer trust funding when the client “get it” and/or the kids “get it” or there are just insurmountable issues with the disclaimer approach (esp. missed deadline).

Happy estate tax planning without funding disclaimer trusts! (Please don’t burn me at the stake.)

Best, Josh

Joshua D. McKarcher
McKarcher Law PLLC
537 6th Street
Clarkston, WA 99403
(509) 758-3345
(509) 758-3314 (fax)
josh at mckarcherlaw.com<mailto:josh at mckarcherlaw.com>
www.mckarcherlaw.com<http://www.mckarcherlaw.com>
________________________________
From: wsbapt-bounces at lists.wsbarppt.com<mailto:wsbapt-bounces at lists.wsbarppt.com> <wsbapt-bounces at lists.wsbarppt.com<mailto:wsbapt-bounces at lists.wsbarppt.com>> on behalf of Rebecca King <rebecca at nwelg.com<mailto:rebecca at nwelg.com>>
Sent: Monday, February 24, 2025 4:36 PM
To: WSBA Probate & Trust Listserv <wsbapt at lists.wsbarppt.com<mailto:wsbapt at lists.wsbarppt.com>>
Subject: [WSBAPT] Disclaimer After IRA Transferred to Surviving Spouse

Greetings,

A surviving spouse “accepts” deceased spouse’s IRA worth $1,500,000 under a beneficiary designation (title has been changed to the surviving spouse), the surviving spouse has their own IRA worth $500,000, and the couple also has a brokerage account worth $2 million (not JTWROS).  Surviving spouse wants to disclaim as much of the brokerage account as possible to avoid Washington State estate taxes on their death.  What is the most the surviving spouse can disclaim and put in a disclaimer trust?

I have received different answers from a couple of accountants, and I look forward to hearing from the RPPT brain trust on this!  Thank you.

Warmest regards,
Rebecca King
Attorney

Northwest Elder Law Group
2150 N. 107th Street, Suite 501
Seattle, WA 98133
Main: (206) 937-6102
Direct Line and Fax: (206) 866-6544
www.nwelg.com<http://www.nwelg.com>

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