When you want to say “No Thank You”

What is a disclaimer?

A “disclaimer” is a legal no thank you. It is an irrevocable and unqualified refusal to accept an interest in property. The effect of a disclaimer is as if no transfer was made to or from the person making the disclaimer. Most states have statutes that allow disclaimers and set forth how they are to be made.

What is a qualified disclaimer?

A disclaimer is “qualified” if it meets the requirements of Section 2518 of the Internal Revenue Code.

These requirements are:

• The disclaimer must be in writing
• The disclaimer must be delivered to the person who is attempting to transfer the interest to his or her legal representative or to the holder of the legal title to the property.
• The disclaimer must be delivered not later than 9 months after the date of death or 9 months after the person making the disclaimer becomes 21.
• The person making the disclaimer must not have accepted the interest or any of its benefits
• As a result of the disclaimer, the property must pass, without any direction on the part of the person making the disclaimer, either to the spouse of the person making the transfer or to someone other than the person making the disclaimer.

Why would anyone want to disclaim any property left to them by a decedent?

Disclaimers are exercised to redirect property to another person either for tax purposes or as a reallocation of assets for nontax purposes.

For example, if a parent dies leaving all his or her assets to the parent’s two children and one of the children is terminally ill, it may be advantageous to disclaim the property so that it will automatically pass to the terminally ill child’s children without being included in the estate of the terminally ill child.

What if at the death of a spouse the surviving spouse is 95 years old and doesn’t need the assets in the deceased spouse’s IRA? If the surviving spouse were to take the IRA, he or she would be required to withdraw large amounts each year. A better tax strategy would be for the surviving spouse to disclaim the IRA and it could then be distributed to a younger beneficiary who would have lower required minimum distributions.

Can jointly owned property be disclaimed?

Yes, jointly owned property can be disclaimed. State law controls the starting point for the surviving spouse’s ability to disclaim his or her survivorship interest.

Is a disclaimer all or nothing?

No, you may disclaim all or part of the inheritance.