What is a Disclaimer Sub-Trust and how does it work?

A Disclaimer Sub-Trust (also called Trust B) is an irrevocable sub-trust created inside the deceased spouse's Revocable Living Trust at the first spouse's death. It has its own Employer Identification Number (EIN), files its own tax return, and has its own tax rates. The sub-trust allows the surviving spouse to decide — within nine months after the first spouse's death — whether to keep assets outright or permanently 'Disclaim' them in writing under RCW 11.86.031. Disclaimed assets pass automatically into the deceased spouse's trust, which became irrevocable at death and cannot be amended by the surviving spouse.

How does the $6 million Washington Estate Tax shelter actually work?

The absolute ceiling for a married couple planning defensively under current Washington law is $6 million of combined exemptions — $3 million apiece. The Disclaimer Sub-Trust captures both spouses' exemptions, effectively doubling the protection available to a married couple. The $6 million+ shelter works as follows: 1. At the first spouse's death — the surviving spouse Disclaims up to $3 million into the Disclaimer Sub-Trust (Trust B). This permanently shelters the first spouse's $3 million WA exemption from estate tax at the second spouse's death. Because the trust grows at approximately 8% per year and the surviving spouse takes about 5% per year ($150,000/year), the balance is likely to be about $4.2 million after 10 years. 2. At the second spouse's death — the surviving spouse's own $3 million WA exemption shelters their remaining estate. Adult children beneficiaries receive approximately $7.2 million total: $4.2 million from the grown Disclaimer Trust plus $3 million from the surviving spouse's own exemption. Lifetime Gifting — Up to $24 Million More: Married couples can protect up to $24 million more from WA Estate Tax by giving assets to children, grandchildren, and great grandchildren while both spouses are alive. The surviving spouse can continue to give after the first spouse passes, but the total is reduced by $15 million — to $9 million instead of $24 million. The 'Phantom $9 Million' Illusion — Why a QTIP Does Not Create a Third Exemption: Some advisors sug

What are the legal requirements for a Qualified Disclaimer under IRC § 2518?

For the IRS to recognize the disclaimer and provide tax protection, the surviving spouse must follow these strict rules: 1. Timing — the disclaimer must be made in writing and delivered to the trustee within nine months of the deceased spouse's death 2. No prior acceptance — the surviving spouse cannot have accepted any benefits or income from the disclaimed assets before disclaiming them 3. No direction — the spouse cannot direct where the disclaimed assets go; they must pass automatically into the sub-trust as designated by the original trust document The five most common disclaimer mistakes: • The 'Acceptance of Benefit' Trap — depositing a dividend check or moving funds from a joint account voids the disclaimer • Missing the 9-Month Deadline — no extensions exist under IRC § 2518 • Retaining 'Directional Power' — you cannot condition a disclaimer on assets going to a specific person • Forgetting the 'Spousal Exception' limits — the surviving spouse's power of appointment can disqualify the disclaimer • Ignoring 'Partial Disclaimer' Rules — you can disclaim a specific dollar amount or percentage

What is the Washington State Estate Tax — and how does it differ from the federal estate tax?

Washington State has its own estate tax, separate from the federal estate tax, with a much lower exemption: Washington State Estate Tax: • Exemption: $3,000,000 per person (as of July 1, 2026) • Rates: 10% to 20% on amounts above the exemption • No portability — unlike the federal system, Washington does not allow a surviving spouse to use the deceased spouse's unused exemption • Applies to all Washington residents and to Washington real property owned by non-residents Federal Estate Tax: • Exemption: $15,000,000 per person (2026) • Portability available — surviving spouse can elect to use deceased spouse's unused exemption • Rate: 40% on amounts above the exemption Because Washington does not allow portability, separate property trusts and the Disclaimer Sub-Trust are the primary tools for capturing both spouses' $3 million exemptions — effectively protecting up to $6 million from state estate taxes.

Christopher S. Mulvaney, Esq. — Attorney-and-Counselor-at-Law — Professionalism with Integrity — WSBA#33595 — Licensed Only in Washington State

[email protected]Bellevue, WA

Disclaimer Sub-Trust (Trust B)

Trusts Overview

Washington Estate Tax Planning

Double the $3 million WA Estate Tax Exemption to $6 million — shelter up to $24 million more for married couples by giving assets while both spouses are alive.

RCW 11.86.031 — Qualified Disclaimer (Washington State)

The Disclaimer Sub-Trust is the mechanism that allows a married couple to shelter up to $6 million+ from Washington State Estate Tax — more than doubling the $3 million per couple WA Exemption by capturing both spouses' WA Exemptions. The reason that $7.2 million is likely to be the amount sheltered is that the $3 million Disclaimed by the surviving spouse continues to grow, probably at an average rate of about 8% per year. If the surviving spouse lives for 10 years and takes 5% per year ($150,000 per year based on $3 million) the balance will be about $4.2 million by the time it is given to adult children beneficiaries. When the second spouse passes, adult children beneficiaries will get about $7.2 million — $3 million from the surviving spouse plus the Disclaimer Trust balance. Married couples can protect up to $24 million more from Estate Tax by simply giving assets to children, grandchildren, and great grandchildren while they are both alive. The surviving spouse can continue to give after the first spouse passes, but the total amount is reduced by $15 million — to $9 million instead of $24 million. The absolute ceiling for a married couple planning defensively under current Washington law is $6 million of combined exemptions ($3 million apiece). A QTIP trust is a tax-deferral vehicle, not an exemption multiplier — if a client wants to shield more than $6 million from Washington State tax, they cannot do it by juggling post-mortem trusts; they have to use lifetime gifting strategies to remove assets from the estate entirely.

Reference Links

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