Disclaimer Trusts

How a Qualified Disclaimer Works (The Rules that Matter)

To count as a qualified disclaimer under IRC §2518 (and avoid gift treatment), the disclaimant must:

1. Refuse In Writing—a signed written disclaimer;

2. Within The Deadline—generally within 9 months of the transfer (usually the date of death) or, for a minor, within 9 months of reaching majority;

3. Before Accepting Benefits—no acceptance of the asset’s benefits (e.g., taking income, using the shore house) before disclaiming; and

4. No Direction Of Where It Goes—the property must pass without the disclaimant’s direction, as your document already specifies (e.g., “to the Credit Shelter Trust”).

We handle the drafting, timing, and delivery to the personal representative/trustee, and we coordinate with valuations and appraisals to document what was disclaimed.

NJ-Specific Considerations

• Probate And Public Process: New Jersey probate is public and creditor-oriented. With a funded RLT, your disclaimer structure can operate largely outside probate, minimizing the common 3–7% all-in administrative drag (fees, commissions, bond premiums, appraisals, delays).

• New Jersey Inheritance Tax: Class A beneficiaries (spouse/lineal descendants) are exempt; non-Class-A (siblings, nieces/nephews, friends) can trigger inheritance tax. Disclaimer paths must respect beneficiary classes to avoid accidental tax.

• Bargain & Sale Deeds: For NJ real estate (including shore properties), we retitle into the RLT and specify where a disclaimed interest passes (e.g., CST or QTIP), preserving use rights and clean chains of title.

• Executor/Trustee Logistics: We train fiduciaries on what not to do (e.g., don’t pay income to the survivor from assets that might be disclaimed) before the decision window closes.

Common Mistakes We Prevent

• Missing The 9-Month Window or accepting benefits too soon (living in the beach house, cashing dividends).

• Vague Or Missing “Where It Goes Next” Language, causing gifts or failed disclaimers.

• Over-Reliance On Portability Alone: DSUE helps but doesn’t shelter post-death appreciation like a CST; a disclaimer lets you capture that growth.

• SECURE Act Errors: Directing retirement accounts to a spouse “conduit” only; we often use an SRT (Stand-Alone Retirement Trust) with accumulation terms so a spouse can disclaim some assets while still optimizing 10-year rules and tax brackets.

• Unfunded Trusts: A Disclaimer Trust only works if assets are titled/beneficiaries are aligned. Funding is non-optional.

For Professionals (A deeper dive)

• Document Architecture: Classic formula—“All to spouse outright unless spouse disclaims, in which case the disclaimed portion passes to the CST with HEMS standard.” Layer with Clayton election to pivot between CST and QTIP on elected property.

• Partial Disclaimers: Permitted by asset/class/percentage; careful tracing and segregation required.

• GST Strategy: The remainder in a CST can be GST-exempt via allocation at first death; “reverse QTIP” (§2652(a)(3)) may be relevant if a QTIP path is used.

• Basis Planning: Outright assets kept by the spouse may secure a second step-up in basis at the survivor’s death; disclaimed CST assets generally will not re-step. We model basis vs. estate inclusion.

• S-Corp Stock: Coordinate with QSST (Qualified Subchapter S Trust) or ESBT (Electing Small Business Trust) if the CST may hold S-corp shares.

• IRAs/Plans: Disclaimers from a spouse beneficiary must follow plan/IRA procedures; consider separate account rules and SRT drafting to avoid conduit traps.