The Rules of Disclaimers
According to the IRS and tax laws, all disclaimers need several basic things to be qualified. They must be in writing and irrevocable -- meaning you can't change your mind later -- and they must be delivered to the executor or other representative within nine months of the person's death. (For a minor heir, this would be nine months after his or her 21st birthday.) This all makes sense, but it seems similar to how you'd treat any other legal document.
Two requirements, though, are very important. First, you can't get any benefit from the disclaimed amount: You can't use some of it and then disclaim the rest, or set aside a certain amount for later. It has to be as if you'd never been a part of the process, or as if you'd passed away first.
Along those same lines, you can't have anything to say about where the inheritance goes next. Since you were retroactively never in line to inherit, you can't dictate who the beneficiary should be. If this taker in default, as they're called, isn't provided for in the will or estate documents, the bequest would follow down the usual federal and state lines of inheritance.
Not only can this become very complicated very quickly, but it also might have strange consequences given other exemptions and tax shelters in play. For example, if the taker in default is a grandchild but there's no generation-skipping tax exemption left, you're suddenly paying taxes you might have otherwise avoided.
Altogether, it's as important to understand the role of disclaimers before they become necessary as it is to come up with creative uses for them. Our tax system is constantly in flux these days: How are you supposed to provide for your family when you have no way of knowing whether there's even going to be an estate tax in the year that you die? By leaving room for disclaimers, you give your family a powerful tool to make sure everyone is taken care of and your wishes are followed. And that's the whole point of estate planning, after all.
Check out the links below for more information about taxes and inheritance.
- Bank of America Corporation. "5 Inheritance Planning Mistakes." Merrill Lynch Wealth Management. 2010. (Jan. 15, 2011)http://www.totalmerrill.com/TotalMerrill/pages/ArticleViewer.aspx?TITLE=5-inheritance-planning-mistakes
- Deathcare.com. "How to Refuse a Bequest". July 30, 2009. (Jan. 15, 2011)http://www.deathcare.com/2009/how-to-refuse-a-bequest.html
- Horovitz, Rudoy & Roteman. "To Disclaim or Not To Disclaim: That Is the Question." Oct. 30, 2006. (Jan. 16, 2011)http://hrrcpa.com/events.php?st=article&title=132
- Selzer Gurvitch Attorneys at Law. "Just Say No, Thanks - Disclaiming Gifts or Bequests." Feb. 15, 2008. (Jan. 15, 2011)http://www.sgrolaw.com/news_publications/publications-info-24
- TrustLawyer, LLC. "Do You Really Want Your Entire Bequest? Planning with Qualified Disclaimers." Law Office of Jeffrey L. Crown. 2010. (Jan. 15, 2011)http://www.trustlawyer.com/qualified-dis.html