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Disclaimers: When Should You “Give Away” Money?

Gene Kirzhner July 1, 2015

May a person entitled to an inheritance refuse to accept it? It might sound like a strange question, but there are strategic reasons why a person might choose to do so. The refusal to accept inherited property is referred to as a disclaimer, and the rules outlining how to properly execute a disclaimer are codified by both federal and state law.

First, why would anyone voluntarily choose to forego inherited property? It might be the case that the inheriting party simply doesn’t want or need it. Or perhaps the inheriting party doesn’t feel it was the actual intent of the testator. Take for example a surviving wife who has been left all of her deceased husband’s assets via husband’s Will. It may be the wife’s feeling that she’d like her children to have the couple’s vacation home immediately, rather than the children waiting for her passing to receive it. Or perhaps the wife doesn’t feel able to properly carry out the upkeep and maintenance of the vacation home.

Thankfully a beneficiary of a Will has the option of disclaiming his or her share of inherited property. By disclaiming property, the beneficiary allows the disclaimed property to pass to the next beneficiary in line under the Will—usually, but not always, the children. Disclaiming property becomes a bit more complicated when the property to be disclaimed is jointly held and does not pass under the Will, but for purposes of this article, assume that the interest in property passes entirely from the deceased party to another.

Similar to the above example, an inheriting child may choose to disclaim a deceased parent’s property. It may be the case that the child does not want the responsibility, or would prefer that another party receive the financial benefit of the bequest. In this case, the disclaiming child would be passing the property to the next person in line under the Will, or a member of the same “class,” perhaps.

Tax Benefits of Disclaimers

Additionally, disclaimers offer tax benefits under certain circumstances. Although the Federal estate tax threshold now exempts all estates smaller than $5.43 million, the Rhode Island and Massachusetts state estate taxes are much smaller ($1.5 million and $1 million respectively). If a surviving spouse fears that holding the entire couple’s estate may eventually subject his or her estate to tax liability, that spouse may disclaim a portion of the assets sufficient to lower his or her taxable estate.

Depending on the reason for the disclaimer, federal and/or state-level statutes governing the procedure, must be followed for them to be effective. Specifically, disclaimers must be executed within nine months from the testator’s date of death. Additionally, the disclaimer document must specifically and sufficiently describe the property to be disclaimed, and in some cases, must be filed with the probate court or local town or city property archives. The disclaimer must also be irrevocable, and the disclaiming party cannot have already accepted an interest in the disclaimed property or any of its benefits.

To find out more about disclaimers, or other estate planning and elder law strategies, please contact our office to speak with one of the attorneys.