What is an Inheritance Disclaimer?
A Will may be "disclaimed" by a non-accepting beneficiary. This means that the beneficiary intentionally and voluntarily refuses a bequest or inheritance rightfully given to him under the terms of a Will. Many times, a beneficiary will not receive an asset because he is receiving a benefit from another source (for example, if – as might be the result of a trust – they are receiving distributions from a trust instead).
A person who has standing to inherit (the "disclaimant") may disclaim any or all interests in an estate. Because a beneficiary is named in a Will, one may think that he is forced to accept whatever he is given. In fact, however, a beneficiary may refuse his inheritance in whole or in part.
In Pennsylvania, this is done by execution of a proper Inheritance Disclaimer form and delivery of the same to the executor by the disclaimant. There are certain conditions that must be satisfied in order to properly make an inheritance disclaimer:
- A disclaimer must be in writing.
- The disclaimer may be in any form , but must indicate a refusal to accept some or all of the interest to which the disclaimant would have been entitled, or the portion of the interest that is disclaimed. For example, a claim like "I hereby renounce, release and relinquish all my right title and interest which I may have in, or which I may be entitled to, under the Will of John Doe." is a proper disclaimer.
- A disclaimer may be made as to any part of an estate, real or personal, or as to any fraction of a part of an estate.
- The executor’s discretion as to the manner of division and distribution under the will may not be exercised.
- A disclaimer must be in writing, signed by the disclaimant and, in the case of a will, delivered to the executor named in the Will or to the Register of Wills within 9 months of the death of the testator.
Advantages of an Inheritance Disclaimer
Depending on your situation there can be significant benefits to utilizing a disclaimer form. From a tax standpoint, it could be in your best interest to disclaim an inheritance if, for example, you have a very large estate and want to try to avoid federal estate tax or if you are receiving a very large gift or inheritance that would put your own estate over your state’s estate tax threshold and would then trigger estate tax for your estate. It can save unnecessary and/or burdensome estate administration if your disclaimed assets don’t need to be accounted for, such as if you are receiving a portion of an estate that your two sisters are also inheriting and they don’t want their share. Perhaps the decedent wanted to transfer assets to their children free from their spouse. It may help avoid responsibility or liability. A classic example is the disclaimed retirement account. You are the beneficiary of a large amount of money left in an IRA, a retirement savings account. You want the money, but because of the way the government taxes multi-generational IRA accounts, you will pay a lot of tax over your lifetime. So you disclaim your share of the IRA so it does not become payable to you, and it will then go directly to your children, per stirpes. The tax is paid (or avoided) in the decedent’s estate, so nobody misses it, but you did not want that tax burden on you, giving your children a larger windfall when the decedent passed away.
How to Properly Disclaim an Inheritance
A disclaimer of an inheritance, like other legal documents, should be carefully drafted. Normally, an inheritance disclaimer should be executed within nine months to comply with state and federal law and to be effective for estate tax purposes. A disclaimer may be drafted by an attorney and it is certainly advisable to consult an attorney knowledgeable on this point.
In addition to specifying that the disclaiming beneficiary disclaims any power of appointment or similar interest, a legal disclaimer of an inheritance should have certain other requirements as well. California Probate Code § 277 takes precedence over IRS regulations, and requires that the disclaimer be in writing (preferably on a form that can be filed with the court), be witnessed by two people, and be signed by the party who wishes to renounce his or her interest.
If the disclaimer is just too complex to undertake alone, you might find it preferable to use an attorney experienced in estate planning and probating wills. After all, in many cases, the inheritance is sizable enough that it may certainly be well worth the effort and expense to do so.
Where to Obtain a Free Inheritance Disclaimer Form
A free inheritance disclaimer form can often be found online at many legal websites. Oftentimes, the bar association for your state or a web-based law library can provide this kind of estate planning document for free on their website. Several companies that focus on the online delivery of estate planning services also provide these forms.
Although these sites can be a good way to get a free inheritance disclaimer form , you have to be careful about whether the form is valid for your legal jurisdiction. States set their own laws about disclaimed inheritances, and they will not always follow the same guidelines. Your estate planning documents should be specific to the laws in your state, and you should save yourself some grief and avoid using an out-of-state document that may not be valid where you live.
Helpful Tips and Potential Issues to Avoid
A few important things to keep in mind while drafting your disclaimer of an inheritance.
- Disclaimer must be in writing. While there are those that may suggest to you that you are the beneficiary of a will and/or trust, which they are a part of, you can simply disclaim your right to take your inheritance as a matter of course, it is not a good idea. You should always do so in a formal written document properly executed as indicated above.
- Call the court to find out what the statutory time limits are for the disaffirmance of an inheritance in your jurisdiction. In California, the statute of limitations period is nine months. You may have other time considerations (i.e. waiting to file a beneficiary’s claim).
- Watch out for tax issues, if you disclaim your inheritance in a manner that conforms with the law, it will not be subject to estate taxation as though you had received it. Issues occur if you want to receive a gift for the benefit of a minor under California’s Uniform Transfers to Minors Act, instead of gifting to the adult and permitting them to hold in one of the legally permissible forms.
- If the decedent had already died, be sure you are entitled to receive the benefit in the first place. In other words, if the decedent did not intend for you to receive the gift, and never wanted to transfer the wealth that you have just received, you may have a problem.
When to Consult an Attorney
While it is certainly best practice to have a qualified estate planning or probate attorney complete an inheritance disclaimer, there are instances when people will be disclaimed for a variety of reasons. For some, the presence of legal or tax complications may make having an attorney prepare an Inheritance Disclaimer Mission Critical. In other instances, people who simply do not like to seek legal advice (at least not before they have to) may encounter unexpected issue because they do not seek legal advice for their disclaimer. If you find yourself in any of the following scenarios , obtaining legal advice is strongly recommended.
- Your desired inheritance spans across multiple trusts and/or estates.
- You and the decedent are estranged and left out purposely and there are ample grounds/justification to challenge the Will.
- You lack full capacity.
- You have received government benefits and the inheritance could cause you to go over limit for assets, jeopardizing your benefits.
- You are considering an irrevocable trust and need estate planning advice.
- You are attempting to disclaim a partial interest in an estate.
- You are a creditor of the proposed beneficiary or someone who is disclaimed in a Will and possess a claim against that person’s estate.
- You owe taxes and require legal advice to determine your liability for being disclaimed (uncertain if you will be held liable).