In this article, we discuss how to refuse an inheritance and answer the following questions:
- What is a disclaimer?
- Why would someone want to refuse an inheritance?
- How does one file a disclaimer?
- When is a disclaimer invalid?
In the early seasons of the hit show “Extreme Home Makeover” on ABC winners were often moved to tears towards the end of each episode when the large bus turned its wheels to reveal the beautiful new home hidden behind. But sometimes the new homeowners were again brought to tears when they received their updated tax and utility bills. This was fixed in later episodes with the winners receiving a lump sum of money or some other financial assistance with their new home. This example perfectly illustrates how some “gifts” or inheritances can come with overshadowing burdens. Johnny is excited to find he is inheriting grandpa’s farm, but he may not be so excited once he learns about the costs of maintaining the farm, the tax burdens, and the debt associated with the farm.
What Is A Disclaimer?
A disclaimer is a statement in writing by the beneficiary officially refusing, declining, denouncing, or disclaiming the entirety or a portion of any interest from an inheritance. A disclaimer may be an undivided interest or fractional share of any property, identifiable assets, portion or amount of funds, etc. Pretty much if someone wants to disclaim something from an inheritance it doesn’t matter what it is, as long as the disclaimer is properly executed the heir can refuse the inheritance.
Why Would Someone Want To Refuse An Inheritance?
The most common reason for disclaiming an inheritance is because the heir doesn’t want the debt associated with the inheritance. When someone dies all their personal property, including debt, is rolled into their estate. Their estate is disbursed according to their estate plan, or intestate law if no estate plan exists, and with that disbursement may come property, business, etc that has debt attached.
There are hundreds of scenarios where the heir may want to consider disclaiming all or a portion of their inheritance, including:
- Someone with a large estate who is already ill of health and realizes that the next person in line for the inheritance may be better served with the assets and will likely face a much smaller tax burden;
- A person facing personal bankruptcy who would likely lose much of the inheritance anyways or the inheritance would complicate their bankruptcy in a way that is unbeneficial;
- A spouse who would stand to receive stock or cash from his or her spouse’s death, but has no need for the extra assets and would rather not lose money in the long run from the estate tax;
- An heir who has considerable financial debt and does not want an inherited property or asset to be accessible to creditors;
- Someone who created an estate plan early in life and failed to update it as circumstances changed. His or her heir may utilize a disclaimer to better mirror what the decedent would have wanted, had he or she updated their estate plan.
How Does One File A Disclaimer?
The disclaimer will be a written document signed by the heir seeking to disclaim the property, or written and signed by a representative of the heir. Any probate attorney should be able to find or draft a form for their client. The document must do three things:
- Describe in detail the item to be disclaimed;
- Identify the creator of the item or interest to be disclaimed; and
- State the disclaimer and the extent of the disclaimer
The disclaimer must be delivered to the transferor, trustee, representative, or appropriate fiduciary person in charge of handling the disbursement of the estate to the beneficiaries. The disclaimer must be filed within 9 months after the death of the creator or the beneficiary learning of the interest to be disbursed.
When Is A Disclaimer Invalid?
Certain actions taken by the beneficiary will result in any disclaimer filed by the beneficiary being considered invalid, such as:
- Judicial sale of the property;
- The contractual agreement between the disclaimant and another party to sell, transfer, assign, etc part or all of the interest to be disclaimed;
- A written and signed waiver of the right to disclaim; or
- If the disclaimer accepts the property or interest.
Using a disclaimer can be an important tool in the estate planning of complex and/or large estates. However, the use of such a tool should be made with great consideration for its potential implications on the estate plan and the beneficiaries. Working with experienced estate planning and probate attorneys can ensure that your estate is handled in the best way possible for you and designated beneficiaries and makes the most of the current tax laws. If you have any questions about estate planning or probate give us a call at 630-324-6666.
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