It’s not enough to put together an estate plan for your immediate family. You should also consider any inheritances you might receive from other family members. For example, you might stand to inherit a huge sum from your parents or in-laws. This can complicate matters if you’re trying to reduce the size of your own taxable estate.
However, you don’t have to accept the bequest and may be able to still keep the money in the family. How? By using a “qualified written disclaimer” to bypass your estate. This amounts to a legal refusal of the inheritance.
For estate and gift tax purposes, the property is treated as if you never received it and automatically passes to the next beneficiary in line. Thus, you can effectively put the property in the hands of your children — where it would probably have ended up anyway. However, discuss with your tax adviser whether this could trigger other tax consequences.
To qualify for tax purposes, you must meet certain requirements:
- Your disclaimer must be in writing and be irrevocable.
- You must disclaim the gift within a certain amount of time — generally nine months after the date of death or taxable transfer.
- You must take action before you receive any benefits from the gift.
- You must not have already benefited from the inheritance.
Under the law, you cannot direct or control who gets the gift you’re refusing. But unless an alternate beneficiary is named in the will, the assets are generally treated as if you had also died. In other words, they pass to the next-in-line beneficiary. So you can’t generally refuse an inheritance and decide you want the money to go to charity instead.
A disclaimer can be an effective postmortem estate planning tool for many families. But it must be done properly under federal and state laws to be valid. For more information, consult with your estate planning attorney.