In certain circumstances, it may make economic sense to reject
all or part of the inheritance you receive from a loved one. The
legal tool for making such a rejection is called a disclaimer.
In certain circumstances, it may make economic sense to reject all or part of the inheritance you receive from a loved one. The legal tool for making such a rejection is called a disclaimer.
A disclaimer is the legal refusal to accept an inheritance. By “disclaiming” an inheritance, the heir makes an irrevocable decision to relinquish all or part of the deceased person’s property. The assets then pass to another beneficiary according to the terms of the will.
Why would someone give up an inheritance? Maybe circumstances have changed since the will was prepared. Perhaps your parents wanted to leave everything to you as their child. But now as a financially secure adult, you don’t want to receive a large inheritance that will increase the complexity of your estate planning or your estate taxes. So you disclaim. Current tax rules provide an estate tax exemption of $1.5 million in 2004. The exemption increases to $3.5 million in 2009, becomes unlimited in 2010, and reverts to $1 million in 2011. Of course, these rules may change. By providing maximum flexibility in deciding how much to inherit, a disclaimer lets the heir pay as little estate tax as possible.
What’s required for a disclaimer to be effective? The beneficiary has up to nine months after the person’s death to disclaim all or part of the inheritance. The disclaimer must be in writing. Also, the heir can’t use the assets if he or she plans to disclaim them. For example, you can’t cash a dividend check from stocks you’re planning to disclaim. In addition, you can’t direct where the disclaimed assets will go. The will itself must specify the beneficiaries of disclaimed property.
Disclaimers can have drawbacks, so it’s important to discuss all the issues with your attorney. For help with your tax planning, give us a call.
