New York Estate Planning & Elder Law Blog
Claiming inheritance upon its distribution is something that many individuals welcome and conversely is the source of many family disputes. There are many reasons why someone may want to refuse their bequest however, in a process in estate planning referred to as disclaiming inheritance. Some beneficiaries seek to disclaim their inheritance due to their personal wealth, whether wealthy or poor, for tax reasons, or to pass the gift on. In estate planning, if you decide to disclaim your gift or bequest, you will be treated as if you died before the grantor did, and your share is redistributed according to the terms of the will.
Examples of Why You May Consider Disclaiming
Estate taxes can be particularly hefty and if disclaimed, the gift or bequest would pass to the next of kin, who may be more willing to take on the potential tax burden. In years past, disclaimers have been used a stopgap measure after the estate tax expired in which the first million in assets valued from an estate is exempt and assets thereafter is levied at 55%. Once the tax expires, there are sometimes unintended consequences which end up negatively impacting the estate of the beneficiaries.
If your personal wealth situation is one in which you have a sizable amount to inherit, particularly over $675,000, it could be taxed twice upon receiving the gift and upon the beneficiary’s death, thus disclaiming would allow it to transfer, sometimes into a trust, where it start accruing interest. Additionally, if you are filing for bankruptcy or have serious debt, this gift could become an asset that is capable of being seized for the debts owed, thus disclaiming the property would be beneficial so that you and those other beneficiaries do not suffer as a result.
How to Disclaim
Disclaiming inheritance is a relatively simple process. To ensure you will not be taxed on the gift or bequest, make sure to communicate the disclaimer in writing, some states will require the writing to be notarized as well. Next, deliver the disclaimer to the person controlling the distribution of the estate, either the executor or the trustee. It is important to note that there is a time limit on when you can disclaim; disclaimers must be filed within nine months of the death of the grantor or it will be considered a gift to you as the beneficiary. Lastly, make sure you do not accept any benefit from the gift you intend to disclaim at any point, this will confuse your intention of later disclaiming.