A coin toss is used to randomly choose between two alternatives by flipping a coin to see which side shows after it lands, heads or tails.
Predicting whether the basic exclusion amount under I.R.C. § 2010(c) will increase or decrease in the future can feel like a flip of a coin because the amount is currently in a state of flux.
The exclusion was $675,000 in 2000, increased to $3.5 million by 2009, increased to $5 million in 2011, increased to $10 million in 2018, and is scheduled to decrease to $5 million in 2026.
These changes reflect swings of the political pendulum with respect to the amount that is transferrable free of federal estate tax.
Fortunately, a disclaimer provides flexibility. An estate plan with disclaimer planning is not bound by a prediction of the future basic exclusion amount because the decision of whether to fund a trust designed to be excluded from the gross estate is made after death.
The final funding decision is made after death (rather than before) using hindsight (rather than prediction) in response to existing tax law (rather than in anticipation of future law).
Unfortunately, risks exist with respect to all disclaimers because a disclaimer that fails to be a qualified disclaimer under I.R.C. § 2518 results in unfavorable gift tax consequences.
A mistake costs a pretty penny, and many pennies.
This article summarizes disclaimer requirements, presents potential disclaimer trust structures with drafting language, and analyzes the disclaimer decision for small, medium, and large estates.
With disclaimer planning, there is no need to resort to a coin toss to address the unpredictable basic exclusion amount.