Disclaimer of Joint Brokerage Account Reduces Looming Estate Tax
I currently represent an 88 year old widower whose wife died less than 9 months ago. The wife’s estate is approximately $1.6 million. The husband’s assets, including a $1 million brokerage account that had been owned jointly with his wife, are worth approximately $1.8 million. Because the husband’s estate exceeds $1 million, his estate will owe more than $300,000 of estate taxes if he dies after January 1, 2011 and Congress does not change the tax laws prior to his death.
In an effort to reduce or eliminate his potential federal estate tax liability, I have recommended a disclaimer of the husband’s one-half survivorship interest in the brokerage account. If the husband chooses to file a disclaimer, his children will receive one-half of the brokerage account now, rather than following his death. Under federal law, the disclaimer will not be treated as a gift by the husband. This means that no federal gift or estate taxes will be charged on the $500,000 passing to his children. The disclaimer will reduce his federal estate taxes by more than $200,000.
Tennessee treats a disclaimer of a joint brokerage account as a gift. The husband will have to pay $36,000 of Tennessee gift tax on April 15, 2011. Upon the husband’s death, the inheritance taxes imposed on his estate will be reduced by $36,000 as a result of the disclaimer. Therefore, the net effect of the disclaimer is to accelerate the payment of $36,000 from 9 months after the husband’s death to April 15, 2011.
The husband has a modest lifestyle and feels comfortable that he will have sufficient assets for his remaining lifetime after he executes the disclaimer. He also likes the idea of getting assets to his children sooner.
If we knew that Congress would change the federal estate tax exemption to $2 million or more prior to the husband’s death, it would be unnecessary to make the disclaimer. Unfortunately, the disclaimer must be filed within 9 months after the death of the wife. Congress has been in a stalemate for more than 9 years regarding the “estate tax fix.” Because the 9 month deadline will occur in a few weeks, the husband will have to make the disclaimer decision prior to finding out whether Congress changes the law.