If you are a married and need a simple will that minimizes or eliminates estate taxes, consider using a “disclaimer will.” It provides “wait and see” flexibility on whether to use tax planning trusts when the first spouse dies. In other words, you can make choices at that time based on your wealth and the status of tax laws. You don’t have to complicate your life with trusts if they serve no purpose.

Most people will pay no federal estate tax, even without tax planning. The lifetime exemption is $5.124M per spouse. Further, the unused exemption of the first spouse to die is “portable,” meaning that it automatically shifts to the surviving spouse, thereby leaving the survivor with a $10.248M exemption. It is true the laws may change, but even under Obama’s 2013 budget the exemption only rolls back to $3.5M, with full portability.

In years past, when the exemption was, say, only $1M, most wills automatically caused the first $1M of the decedent’s wealth to pass to a “credit shelter” or “bypass” trust, rather than outright to the surviving spouse. This amount was not included in the survivor’s estate (at her death), which had the effect of reducing estate taxes at that time. Since the exemption was not “portable,” the credit shelter trust was necessary to capture the benefit of the decedent’s exemption. Absent a trust, the decedent’s $1M exemption would be lost. Portability changes the landscape, and a credit shelter trust is no longer necessary to utilize the first spouse’s federal estate tax exemption. And a will calling for a mandatory credit shelter trust may force the surviving spouse to hold wealth in a trust even it serves no tax purpose.

A more flexible approach is to pass all of the wealth outright to the surviving spouse, except to the extent she disclaims. The disclaimed assets pass to a “disclaimer trust,” which is similar to a traditional credit shelter trust. Conceptually, the surviving spouse deflects assets as needed to reduce her estate below the taxable threshold. So long as (i) the estate tax exemption remains portable, or (ii) the survivor’s wealth is likely to be less than her separate exemption, there will probably be no reason to disclaim. Thus, a disclaimer will provides for a tax planning trust – but only if needed.

One final nuance. Unlike the federal system, the Oregon and Washington estate tax exemptions (of $1M and $2M, respectively) are not portable. Thus, the surviving spouse’s exemption will be only $1M or $2M, not $2M or $4M. To minimize Oregon or Washington estate taxes, the surviving spouse may wish to disclaim up to $1M or $2M, as the case may be, if her estate would otherwise exceed the applicable threshold. Some spouses intentionally forego this opportunity. For example, an Oregon surviving spouse in her 50s may conclude that the hassle of administering a disclaimer trust for the next 30 or 40 years outweighs the potential tax benefit. (Administration includes separate accounting for all trust receipts and disbursements, and separate trust income tax returns each year.) Since the Oregon marginal rate starts at 10%, a disclaimer trust funded with $1M may only produce $100,000 of tax savings at the surviving spouse’s death.

In conclusion, most married clients are well served by using a disclaimer trust to provide “wait and see” flexibility to decide whether to use tax planning trusts when the first spouse dies.