While the process of getting the right documents together can seem intimidating to some, the premise of estate planning is actually rather simple: one individual passes their wealth and all assets that they’ve accumulated down to the next of kin. After the grantor (creator of the will within the estate plan) passes away, their beneficiaries become the new legal owners of the assets specified in the will. While this is usually the case, it’s important to note that beneficiaries are not legally obligated to accept the assets that are being passed down to them.
Why Would Someone Want to Disclaim An Inheritance?
One reason why someone would consider rejecting, or “disclaiming” an inheritance is if they clearly see that a family member or loved would benefit more from receiving the assets than they would. It’s fairly common for the initial beneficiary of an estate to transfer their inheritance to a family member if they are in crippling debt, need the funds for a health-related matter, or any other reason that would require a significant amount of funds. A person could also disclaim an inheritance on the grounds that they believe that the deceased grantor would’ve liked for someone else in the family to accept the inheritance.
Another reason why you might consider disclaiming your inheritance is for none other than tax purposes. While it’s likely that this applies to a minority of families nationwide, if your inheritance is valued at $11.4 million (the federal estate tax exemption), odds are that you will be subject to a fairly hefty estate tax, which for many people is more than enough reason to disclaim an inheritance.
How should someone disclaim inheritance?
To disclaim an inheritance, one must file a disclaimer, a legal document that states that the receiver intends to reject the inheritance. This document must be put into writing and signed by the either the disclaimant or their legal representative. The disclaimant must identify the creator of the will as well as describe their reasons for declining the inheritance. Certain states will require the document to be notarized in order to become effective.It’s important to note that if a beneficiary decides to decline an inheritance, a disclaimer should be completed and notarized within nine months of when the will takes effect.
Next, the disclaimer needs to be filed to the person that is executing the will and distributing the inheritance, usually to an attorney or to a trustee. Once the disclaimer has been filed, it is important that the disclaimant not to accept any of the inheritance. It’s important to note that a disclaimer is a binding legal document. After it’s filed, you cannot suddenly change your mind; it goes without saying that this decision should be made carefully after careful consideration.
Disclaiming an inheritance isn’t something you hear about everyday and for good reason; most people are usually glad to receive an inheritance and use the money to further their career or to grow the assets in an index fund to later be used during retirement. If you or a loved one have received an inheritance and are considering to file a disclaimer, we recommend that you consult with a licensed estate attorney who will ensure that your wishes are followed through.