What is Involved in Disclaiming Assets?

disclaiming assets
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Disclaiming assets will change how an inheritance is distributed.

Let us imagine a situation where a loved one recently died.

This individual left an IRA or other asset to you as an inheritance.

Due to personal or financial reasons, however, you choose to not accept part or all of this inheritance.

According to a recent MarketWatch article titled “Can I reject an inheritance?,” disclaiming assets must be done in accordance with the Internal Revenue Code §2518.

Disclaiming assets can complicate distribution of specific assets.
By disclaiming assets, you allow another to inherit instead of you.

In general, states allow up to nine months from the day the decedent died for an individual to file a qualified disclaimer.

Because a disclaimer is irrevocable, you cannot change your mind once this had been done.

This process can be further complicated with an inherited IRA.

Why?

If the assets have been transferred to an inherited IRA, disclaiming the asset is no longer possible.

If you disclaim the IRA before it has been transferred to an inherited IRA, you will have no authority regarding who receives the funds.

These will be distributed as if you had preceded the IRA owner in death.

If there was a contingent beneficiary, your portion would transfer to this individual.

What would happen if no other beneficiary was named?

The IRA funds likely would pass to the estate of the decedent.

This means the funds will be distributed through probate either according the last will and testament or under the intestacy laws of the state.

Distributing an IRA through a probate estate is inefficient in both time and taxes.

Although disclaiming assets is possible, it can complicate the estate execution.

When creating an estate plan, you should design it to account for the possibility of an heir disclaiming assets.

Reference: MarketWatch (Aug. 25, 2020) “Can I reject an inheritance?”

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