Estate planning includes decisions about the individuals or charities who will receive gifts, bequests, or inheritance from an estate. This instruction from an estate to someone is assumed to be accepted unless it is refused by the intended beneficiary. This refusal is called a disclaimer. As they relate to estates, a disclaimer is a voluntary refusal by a beneficiary to accept a gift, bequest, or inheritance. This refusal allows the disclaimed asset to pass in accordance with the governing will, trust document, or by beneficiary designation rules.
The use of disclaimers can provide flexibility in estate planning and may allow beneficiaries or executors to navigate unexpected circumstances such as changes in tax laws or the financial needs of beneficiaries. A beneficiary may choose to disclaim an inheritance because they do not have a need for the additional asset and are actively working to decrease their own total estate value to ultimately reduce their estate tax exposure.
For a disclaimer to work as intended based on the above it must be an irrevocable, qualified disclaimer. Under the Internal Revenue Code (IRC) there are rules that are required to be followed for a disclaimer to be considered qualified.
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- The disclaimer must be made in writing within 9 months of the decedent’s death (or the date the asset becomes transferable).
- The disclaiming party must not have accepted the property or any of its benefits.
- The disclaimed assets must pass without any guidance from the original beneficiary, typically following terms of a trust, will or state law.
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A qualified disclaimer must also be valid under specific state laws as well as meet the IRC requirements.
Effective estate planning often involves the use of disclaimers to adapt to changing laws and family circumstances, ensuring that the estate is distributed in a matter that minimizes tax liabilities and aligns with the decedent’s wishes and beneficiaries needs.
Boulay has a team of professionals available to help advise you on the strategic use of disclaimers to make certain that they are executed correctly to achieve the desired outcomes. Contact us today to learn more about our estate and trust planning services.
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