When we receive an inheritance, few of us consider that there may be a choice to consider. We are still mourning the passing of someone dear to us when we learn about the inheritance. We just try to continue our daily lives, numb from our emotional loss. The estate or trust administration continues and eventually we receive our inheritance, either outright or in a trust for our benefit.
However, there may be a better way. Accepting the inheritance is a valid option, but it is not the only option. You can also choose to refuse or “disclaim” the inheritance.
How Do You Disclaim?
In order to be useful, a refusal must meet several requirements, making it a “qualified disclaimer”. These requirements are quite technical, but here is an overview of them:
- It must be an unqualified, irrevocable, written refusal to accept
- It must be received by the holder of the property within nine months of when your right in the property accrued (such as the date of your relative’s death)
- If you are under 21 years of age when the right accrued, the right is deemed to accrue at your 21st birthday
- You cannot have already accepted the property or any of its benefits (such as cashing dividend checks, etc.)
- You cannot direct where the property will go after your refusal
- Unless you are the spouse of the transferor, the property cannot go to you or for your benefit as a result of your refusal
Why Might You Disclaim?
Simply, you would disclaim if you would prefer the assets to go to the next person or entity in line rather than to you. For example, if you have sufficient assets of your own, you may prefer to have the assets go to your children. See where the assets would have gone if you had died before the person leaving them to you. Often, the assets would go to your descendants in the event of your death. If so, the disclaimer would divert the assets to your children. A disclaimer is preferable to accepting and then gifting the assets because you avoid having to make a taxable gift. A qualified disclaimer is not a taxable gift even though the assets end up where you want them to go.
Disclaimers can be quite useful in planning an estate as well. For example, IRAs, 401(k)s, and other tax deferred vehicles can be difficult assets to plan for. There are significant income tax advantages to leaving them to your spouse. However, for estate tax reasons, it may be better to leave them to a trust for the whole family, which would not qualify for the income tax advantages. You could designate your spouse as the primary beneficiary and the trust as contingent beneficiary. By doing this, your spouse can choose to disclaim thereby sending those assets to the trust if that appears the better strategy at the time of your death.
As you can see, disclaimers can be pretty powerful and complex. If you are receiving an inheritance, a qualified estate planning attorney can help you determine whether to disclaim. Remember, a disclaimer must be done within nine months and you cannot accept any benefits from the disclaimed assets or there can be no qualified disclaimer. There are no extensions possible. A qualified estate planning attorney also can help you determine if disclaimers have a role in planning your own estate.
Mr. Morrison is a board-certified estate planning attorney with experience in both simple and complex estate matters. He can prepare an estate plan for you that achieves your goals of passing your assets to whom you wish. He has been engaged in Louisiana trusts and estate law for the last 18 years. The firm has helped thousands of clients meet their estate planning goals and pass on lasting legacies to their loved ones. To learn more about how you can achieve your estate planning goals, please call (504) 831-2348 or visit our website at www.morrisonlawplc.com.