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Reasons to Sign a Legal “No Thank You”

DisclaimersA distant relative has died and named you in their will. Once you consider the bequest, you decide to turn it down. Have you lost your mind?

There are several reasons for an heir to disclaim; a legal "no thank you" to an inheritance. In many cases, it’s to redirect the money within the family to a more tax-efficient recipient. For instance, a gift might bump your own estate over the federal estate tax limit. When you reach this threshold, estates are hit with a 40% tax. If a named beneficiary would expect to incur estate taxes on his or her death, a smart move would be to save on taxes and disclaim an inheritance to a child with a smaller estate.

Another use of disclaiming is to redirect assets to a member of the family who needs the money more than the original beneficiary. Children who are financially secure may want to disclaim assets they were to receive in a parent’s estate plan to allow those assets to help support a surviving parent. When a person passes away without an estate plan.  In Virginia, in a second marriage, if a spouse dies without an estate plan, one-third of the estate goes to the surviving spouse and half to children—but that may leave the surviving spouse short on funds. As a result, when it is time to settle the estate, a child can use a disclaimer to return a portion to the surviving parent.

In addition to disclaiming by wealthy families to reduce estate taxes, less-affluent families may also see its application when a beneficiary has creditors who might try to claim inherited assets. It may be smart to direct those assets elsewhere.

This can also help elderly family members who need nursing home care that Medicare doesn’t cover. Medicaid pays for long-term care—but only when recipients have exhausted all of their own assets. The act of disclaiming a gift by someone who might be in need of Medicaid within the next 5 years can be difficult with expert assistance from a law firm that practices Medicaid planning.  A period of ineligibility for Medicaid benefits will apply to anyone who has disclaimed an inheritance within that 5 year period so a comprehensive plan must be developed to include this gifting strategy. 

There’s a time limit: you have only nine months after the decedent's death to disclaim the inheritance and you cannot have benefited from those assets in any way during that period. The beneficiary must notify the Executor in writing about the intent to disclaim via registered or certified mail. Finally, make sure that disclaiming your inheritance is what you want to do because there’s no do-over.

Reference: The Street (August 30, 2016) “Why You Might Want to Refuse That Inheritance”

 

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