For some, finding out that they are inheriting assets from a loved one or friend can be thrilling and emotional. However, for others, the inheritance might not align with their values, plans, or life. When that is the case, they can choose to disclaim an inheritance. A complete estate plan should consider the option to disclaim an inheritance as part of comprehensive planning.
Disclaiming an inheritance is far more common than you think and is not such a complicated task once pen hits paper.
If you are provided an inheritance that you do not align with, don’t be afraid to simply say no and disclaim it. Here’s how.
What Does it Mean to Disclaim an Inheritance?
Disclaiming an inheritance means that you are refusing to be given the assets owned by the deceased person that are assigned to you in a will or trust. When disclaiming an inheritance, you are telling the state that you do not wish to have the assets and to treat the will and trust as if you have passed.
Disclaiming states that you never legally owned the assets owned by the deceased person, which means that you will avoid any potential tax consequences and legal obligations. The asset will completely surpass you.
Why Would Someone Choose to Disclaim an Inheritance?
Disclaiming an inheritance is extremely common and happens for many reasons, depending on the individual.
Tax Exemptions
If the inheritance being bestowed upon you would push your estate over the federal estate tax exemption threshold, or if you are concerned about estate taxes reducing the value of your estate, it may be simpler to disclaim the asset if you want to minimize your tax burden.
Government Aid Eligibility
Many people refuse inheritance if it would push them above the eligibility threshold for government assistance, such as Medicaid, Social Security Income (SSI), and other benefits.
When considering whether to disclaim an inheritance to maintain eligibility for government aid, it’s also important to evaluate long-term care insurance as part of your overall plan for future health and care needs.
Problematic Assets
Sometimes an inheritance is more work than it is worth. For example, savings accounts can be problematic to inherit if they have restrictions or require complicated paperwork, making financial management difficult. If you are given a property or vehicle that is more of a fixer-upper than you might like, passing on it could save you time and money.
Family Considerations
There are times when passing on an inheritance means it would go to someone who could use it more effectively. When you disclaim, the process of distributing assets involves those assets being transferred to the next beneficiary or heir according to the estate plan or legal guidelines. If you do not need money, property, or other assets, but the person next in line on the beneficiary list does, it might be wise to consider disclaiming.
Review the Will and Trust Documents
Before officially disclaiming an inheritance, it is essential to review the will, trust documents, and other important documents, such as digital records and account information, to know exactly what you are disclaiming and what will happen to them afterward. Be sure to review any revocable living trust, as this document can provide flexibility, help avoid probate, and manage assets both during incapacity and after death.
This is your opportunity to see who the next beneficiary is after you, helping you to make your decision, or to see that if there is no one after you, to acknowledge that the state will decide the destination of the inheritance if you disclaim.
All of these factors should be considered when disclaiming the inheritance.
Write a Formal Disclaimer Form
Once you have decided to disclaim an inheritance, it is time to write up a formal disclaimer form.
In the disclaimer form, you will need to include information, such as the deceased’s name, the assets you were provided, and that you are disclaiming the inheritance without receiving anything in return.
Your disclaimer form should be as detailed as possible to show that you understand the circumstances and your choices.
Ensure the Disclaimer is Irrevocable
When drafting your disclaimer form, it is essential to ensure it is considered irrevocable in the eyes of the law.
This means that you, the executor, the court, and everyone involved understand that you declined the inheritance and there is no going back from that choice.
To ensure this, it is recommended to consult legal experts, such as an estate planning attorney, who can provide guidance and confirm that the disclaimer form is legally sound. Additionally, when updating your estate plan, reviewing your durable power of attorney is also important to ensure all documents remain effective and compliant with current laws.
Sign and Deliver the Disclaimer in the Allotted Time Frame
The last step is to have the disclaimer form signed by yourself and possibly a notary, depending on your location. In Missouri, a notary is not required when writing a disclaimer form. In Kansas, a notary is needed when writing a disclaimer form. Be sure to pay any required fees when submitting the disclaimer.
Additionally, throughout this whole process, it is essential to remember that you only have nine months from the day of your loved one’s death to write and submit a disclaimer form. It is important to start early and get it submitted as soon as you can.
Consider consulting a financial advisor to ensure the disclaimer fits within your overall financial and estate plan. Remember, estate planning is an ongoing process and should be reviewed regularly to reflect changes in your circumstances or the law.
What Happens Next?
Once you submit your disclaimer form in the allotted nine-month time frame, you are legally separated from the inheritance once provided to you. You are no longer legally bound to it and will have nothing to do with it going forward.
The inheritance will be passed down to whoever was listed after you or the next of kin. However, you have no say in who it is provided to next. When reading the will and trust, you had the opportunity to learn who this would be and make a decision based on that information.
If there is no one listed or available to inherit it, the state will decide where it goes. Ultimately, when you disclaim an inheritance, your hands are completely washed of the assets.
If you have further questions or are facing a circumstance like this, contact the team at Hartmann Law.