In most cases, when a loved one leaves you something in their Will or Trust, it’s an honor. However, that doesn’t always mean you’d like to inherit the property or assets passed down to you.
There are plenty of valid reasons to disclaim your inheritance, and with the proper legal documentation, you may refuse assets left to you by a loved one who died with a valid Will or Trust, or even if you are an heir-at-law when someone has died without a Will or Trust. Here’s what you need to know about using a qualified disclaimer.
Why would you want to disclaim your inheritance?
You can disclaim a gift or inheritance for any reason, but here are a few of the most common:
- Inability to maintain the assets left to you. If a loved one left you a sizable asset, such as real estate or a vehicle, you may not be in a position to maintain or manage that asset, even if you planned to sell it. In this case, you may wish to disclaim that asset, so it goes to other named beneficiaries or heirs who are more equipped to handle the situation.
- Reducing your taxable estate. This is not a likely scenario for most individuals, but in some cases, inheriting assets from a loved one can put you over the federal thresholds for estate tax if you die after inheriting from someone and the inheritance is counted as part of your estate, or trigger hefty inheritance taxes by the local State taxing authorities where you reside. Note – not all States have an inheritance tax, so it is helpful to determine whether you do or do not live in a state that imposes inheritance taxes.
- Debt/bankruptcy. When a beneficiary is deep in debt or bankruptcy, any inheritance received may be claimed by creditors to cover those debts. If this is the case for you, you may wish to disclaim your inheritance so the assets or property can stay in the family.
- Honoring the decedent’s true wishes. Perhaps you knew the decedent well and know they did not have a chance to update their Will before they died. If you are receiving an inheritance that would be more appropriate to give to someone else who was in their life, you may consider disclaiming it.
- You believe you are too old or have an illness where you can’t truly benefit. Perhaps you feel that, at your age or in your medical condition, it is not ideal for you to be the one to inherit from a loved one’s Will or Trust, and you prefer to disclaim the inheritance in favor of other beneficiaries who need it or can make a longer-term use of the inheritance than you may be able to do during your lifetime.
This is not an exhaustive list of all possible reasons for disclaiming your inheritance. You might refuse to accept your inheritance for a variety of other reasons, or even for no reason at all. The choice is entirely up to the beneficiary.
How to decline an inherited asset using a qualified disclaimer
If any of the situations listed above (or another) apply to you, you might consider having an attorney prepare a formal Disclaimer for you and ensuring that it gets filed with the proper court and taxing authority by not later than nine (9) months after the death of the person from whom you are inheriting. Disclaimers can be partial or full disclaimers. However, once a disclaimer is completed, you may not benefit from that particular item of the estate (e.g., disclaiming inheritance of a piece of real estate) and you cannot change your mind after the fact. So, if you’re sure you want to disclaim your inheritance, here are the steps you’ll need to follow:
- Work with an attorney to have them prepare a proper, formal disclaimer/refusal to accept inheritance in writing, and be sure to sign and notarize it.
- Deliver your disclaimer document to the estate’s executor or trustee within nine months of the decedent leaving you the inherited assets or property.
- File a copy of the Disclaimer with the local county courthouse where the deceased person resided when he or she died, as well as the Internal Revenue Service (in consultation with a CPA).
- Once your disclaimer has been filed, do not accept, directly or indirectly, any benefits or assets from the estate you’re disclaiming. Otherwise, your disclaimer may be rendered invalid and you will be subject to any tax or legal obligations associated with inheriting.
Important nuance: Minor children can have inheritance disclaimed as well on their behalf by a legal guardian or parent; however, these disclaimers may not be legally binding in the eyes of a court unless and until the child reaffirms the disclaimer when they attain eighteen (18) years of age.
If you have any questions about how to prepare a Disclaimer or pros and cons for using disclaimers, consider hiring a local estate planning attorney to guide you through the process. The Law Office of Patricia E. Tichenor, P.L.L.C. has nearly 20 years of experience helping Virginia families with probate/inheritance matters.