There are many reasons why discussing your comprehensive estate plan with your beneficiaries is important. Not only can it help clarify your decisions and provide the reasoning for some choices that may otherwise cause conflict and strife, but it can prepare beneficiaries for their role in the estate plan.
Sometimes, circumstances arise in which a beneficiary may not want the inheritance that is being left to them or it may simply not be practical to accept it. When these situations arise, the beneficiary may have the option of turning down – or disclaiming – the inheritance.
Reasons for Disclaiming an Inheritance
It might seem strange for an individual to want to disclaim an inheritance. However, there are some scenarios when disclaiming an inheritance can benefit the estate as well as other beneficiaries.
For instance, if a beneficiary is facing financial challenges, bypassing an inheritance in favor of the next beneficiary in line can help protect the assets in that inheritance from creditors or other financial obligations that might otherwise consume the inheritance.
Charitable contributions are another instance when disclaiming may provide important benefits to an estate. For instance, if an inheritance has been structured as a life estate with the remainder of the assets going to charity, the beneficiary may disclaim the life estate portion of the inheritance and allow the assets in question to pass directly to a charity in order for the estate to claim a charitable deduction. If the beneficiary accepts the inheritance, the estate will not be able to take this deduction even with the remainder of the assets designated to a charity. Sometimes, the charitable deduction can be more beneficial than the inheritance itself.
There are other reasons why disclaiming an inheritance may be beneficial. An experienced estate planning attorney can help you understand your options when it comes to creating your estate plan and when it comes to your options for disclaiming an inheritance.
Legal Requirements
You may think that turning down an inheritance is as easy as simply saying, “No, thanks.” However, there are important legal requirements in order for you to actually turn down an inheritance. These include:
- The disclaimer must be in writing and signed by the disclaimant;
- The disclaimer must be delivered to the individual entrusted with administering the inheritance within a specific period of time;
- The disclaimant cannot accept any benefit from the inheritance; and
- The disclaimer must be irrevocable, among other state and federal requirements.
The purpose of these legal restrictions is to ensure that individuals that disclaim an inheritance thoroughly understand their decision and do not use disclaiming as a tool to avoid inheritance obligations while still enjoying the benefits of an inheritance.
An experienced estate planning attorney can help you determine if disclaiming an inheritance is right for you. They can also work with you to make sure that, should you decide that disclaiming an inheritance is appropriate in your circumstances, your actions comply with the law.