DEFINITION of 'Disclaimer Trust'

A disclaimer trust is one that has embedded provisions (usually contained in a will) that allow a surviving spouse to put specific assets under the trust by disclaiming ownership of a portion of the estate. Disclaimed property interests are then transferred to the trust, without being taxed.

Provisions can be written into the trust that provide for regular payouts from the trust to support survivors. For example a trust can provide for surviving minor children as long as the surviving spouse elects to disclaim inherited assets, passing them on to the trust.

BREAKING DOWN 'Disclaimer Trust'

For example, if an individual passes away and leaves her husband an estate, he may disclaim some interests in the estate, which then pass directly to the trust as though it were the original beneficiary. Minor children could then benefit from regular payouts.

Disclaimer trusts require that the survivor act according to the wishes of the deceased, and disclaim ownership of some of the assets that the deceased has bequeathed. In the above example, if the surviving spouse does not disclaim ownership of any portion of the estate, then the deceased's wish to transfer assets to the surviving minor children goes unfulfilled. Because of the legal complexities involved, these trusts should only be set up by qualified professionals.

Disclaimer Trust and See Through (or Pass Through) Trust

As another example of a trust in which assets move through to additional beneficiaries is a see-through trust. This is a fund that is treated as the beneficiary of an individual retirement account (IRA). See-through trusts use the life expectancies of the beneficiaries to determine the required minimum distributions (RMD) that will occur after the death of the retirement account holder. Individual retirement account (IRA) owners are able to choose their beneficiary, and federal laws prohibit accounts from continuing on indefinitely.

Disclaimer Trust and Inheritance

Disclaimer trusts, along with other trusts, can bring up challenges with regard to inheritance. These are usually set out clearly in a grantor’s will; however, if a will is not finalized at the time of death, determining rightful heirs proves much more complicated. In most countries, inheritances are taxable. An inheritance tax is generally distinct from an estate tax in that an inheritance tax would aim to tax the heir who has received the inheritance, while an estate tax would apply to the assets of the deceased's estate.

RELATED TERMS
  1. See-Through Trust

    A see-through trust is treated as the beneficiary of an individual ...
  2. Trust Fund

    A trust fund is comprised of a variety of assets established ...
  3. Trust Company

    A trust company is a legal entity that acts as fiduciary, agent ...
  4. 5 by 5 Power in Trust

    A “5 by 5 Power in Trust” is a common clause in many trusts that ...
  5. Inheritance

    An inheritance is all or part of a person's estate/assets that ...
  6. Account In Trust

    An account in trust is a type of financial account opened by ...
Related Articles
  1. Retirement

    Disclaiming Inherited Plan Assets

    There are good reasons to not accept inherited assets, but be sure you follow the proper process.
  2. Financial Advisor

    Understanding How Top Trust Companies Operate

    Trust companies perform a wide range of services related to investment and asset management. Learn why to use a trust company and what they can do for you.
  3. Retirement

    Designating a trust as retirement beneficiary

    Designating a trust as your IRA beneficiary can be beneficial, but it requires proper planning to avoid problems.
  4. Retirement

    How To Set Up A Trust Fund In Australia

    It is not simple to set up a trust fund in Australia, but it is not impossible either. Follow these steps to succeed in the land down under.
  5. Investing

    Establishing a Revocable Living Trust

    Learn how to establish a revocable living trust, an arrangement that allows you to have more control over your estate — both before and after your death.
  6. Managing Wealth

    How to Set Up a Trust Fund in Canada

    You don't have to be rich to make use of a trust fund, but the rules can be complex. Here's what you'll need to discuss with your lawyer.
  7. Financial Advisor

    How Trust Funds Can Safeguard Your Children

    Certain types of trust funds can help to protect your assets from bankruptcies and civil actions, and can be established to safeguard your children and designated beneficiaries.
  8. Managing Wealth

    Which Retirement Plans Need a Family Trust?

    Many people think family trusts are only for the very wealthy, but if your retirement assets exceed $500,000, you may want to consider the option.
  9. Retirement

    A Look at Protecting Children With an IRA Trust

    Too many people make huge and irreversible mistakes when naming the beneficiaries for their retirement accounts.
  10. Retirement

    When Does the Benefit of a Trust Outweigh the Cost?

    Setting up a trust can be costly, but having a living trust in these situations can be beneficial.
RELATED FAQS
  1. How can I put my IRA in a trust?

    Understand the proper way to transfer ownership of your IRA to a trust. Consider the advantages and disadvantages of naming ... Read Answer >>
Trading Center