It is possible to refuse an inheritance.
Many people and cultures consider it rude to decline a gift.
Chances are you were told to smile and thank your relative for the Christmas or birthday present you did not like.
In fact, you may even have had to wear it the next time you saw this loved one.
Could it be your ugly Christmas sweater?
According to a recent NWI Times article titled “Estate Planning: Disclaimers,” you can choose to decline an inheritance even if you have had to wear such unfortunate sweaters in your life.
How does one refuse an inheritance?
A legal document called a disclaimer is used.
To be consider valid by the court it must satisfy conditions.
The disclaimer must be in writing.
It must be irrevocable.
It must be executed within nine months of the death of the decedent.
The disclaimer must be executed before you have received benefits of the inheritance.
You cannot simply change your mind and decide you want to now refuse an inheritance.
After an inheritance has been accepted, it belongs to you.
If you know you want no part of an inheritance but anticipate being included as an heir, you should work with an experienced estate planning attorney to create the disclaimer.
With a valid disclaimer, you will not receive the inheritance.
Instead, you are referred to as the disclaimant.
As the disclaimant, your portion will be treated as if you died before the decedent.
What happens to the inheritance?
This depends on a number of factors.
The children of the decedent may or may not receive the assets.
The inheritance will be distributed according to the provisions of the last will or the trust.
If neither exist, the estate will be divided according to intestate laws in the state of the decedent.
Often the last will or trust itself includes provisions anticipating that heirs might refuse an inheritance.
This could funnel the property to children of the disclaimant, another individual, or a charity.
Once an inheritance is disclaimed, your choice stands.
If you do not execute the disclaimer until after nine months, it is considered invalid.
The assets you wanted to disclaim could be treated as a gift instead of an inheritance and influence tax liability.
For example, executing a non-qualified disclaimer for a $100,000 inheritance means the IRS will treat it as gifting your children $100,0000.
This means you will need to know if any gift taxes are due and who is required to report the gift.
While there are many reasons someone would refuse an inheritance, working with an experienced estate planning attorney can help one avoid unintended consequences should any of your heirs consider disclaiming.
Although the federal estate tax exemption has decreased the need for disclaimers, the anticipated exemption drop on January 1, 2026 may trigger an increase in use.
If you plan to refuse an inheritance, be sure you meet all the requirements.
Reference: NWI Times (Nov. 14, 2021) “Estate Planning: Disclaimers”