{Read in 4 minutes} We’ve all heard horror stories about people inheriting things that they simply don’t want. In fact, I wrote an article about it a few months back. That article envisioned situations where a beneficiary of a Will is set to receive real property that may have little to no value; or tangible personal property that is valueless, cumbersome, or just plain ugly; or perhaps to receive Letters of Trusteeship for a Trust for the benefit of a person who they simply cannot stand. However, sometimes there are situations when beneficiaries may receive valuable things under the Will, but they do not want them.
Here is the most common example: Grandmother is a very wealthy person, and she leaves her entire Estate to her daughter. Daughter is the very successful CEO of a Fortune 500 company. And while she has a wonderful, loving relationship with her mother, she certainly does not need her mother’s money.
– Perhaps there are people within the family who could make better use of it. Perhaps the daughter’s own children (the grandchildren of the grandmother) who are young adults and just starting to make their way in the world.
– Perhaps some of the other siblings who are not as well-off as their sister.
(Of course, this assumes that mom did not intentionally disinherit these other children from the Will, and hopefully she did not make incredibly disparaging remarks in her Will about why she did that.)
If the daughter were to disclaim some or all of the assets of the Estate, the law treats her as if she predeceased her mother and the Will’s alternate distribution patterns would designate the successor beneficiaries of those assets. This would presumably go to the daughter’s own children or, if none, to the daughters siblings. This would thus achieve the daughter’s goal of distributing the family wealth to the family members who need it the most.
This can be an incredibly powerful tool allowing for the transfer of wealth to other people without having to worry about the Estate and Gift Tax — either by ensuring that the wealth is subject to taxation on an every-other generational level, or by preventing the beneficiary from making a taxable gift and eating up part of their credits.
What are the requirements to make a qualified disclaimer and renunciation?
– Unless the Surrogate’s Court orders otherwise, a beneficiary must disclaim the assets in question within nine months of date of death. This is done by filing papers with the Surrogate’s Court that issued Letters to the Executor or Administrator of the Estate. If the beneficiary is not also the Executor or Administrator, the beneficiary also needs to mail these papers directly to the Executor or Administrator.
– The beneficiary disclaiming the assets in question must not have enjoyed any use of the assets prior to making the disclaimer. For example, the beneficiary cannot receive the deceased’s retirement accounts collected as a lump sum check and then decide subsequently, after having full access to the money, to disclaim it in favor of other beneficiaries. Similarly, the beneficiary disclaiming the assets can receive no financial compensation for their decision to disclaim the assets.
So as you can see, this is a very powerful tool that allows for some post-mortem estate planning to ensure that everyone’s needs are properly met. So long as it is generally consistent with the deceased’s original estate plan, the parties involved can achieve a myriad of investment, tax planning, and inheritance goals.
The nine months that the statute allows from the date of death is also convenient because it means that this is not the type of decision that needs to be made immediately upon someone’s passing; the beneficiary in question has the opportunity to consult with a lawyer and accountant of their own choosing.
For more information on this topic, please contact me.