It’s a bit of a strange thought, but occasionally there are reasons for people not to want their inheritance. They may have expected the money to go to someone else and want to facilitate that, they may feel they have enough money and want it to pass to someone else, or perhaps they are concerned about taxes. Whatever, the reason, no one can be forced to accept an inheritance they don’t want. However, what happens to the inheritance after they reject, or “disclaim” the inheritance depends on a number of things, says the recent article “Estate Planning: Disclaimers” from NWI Times.
A disclaimer is a legal document used to disclaim the property. To be valid for at least most tax purposes, the disclaimer must be irrevocable, in writing and executed within nine months of the death of the decedent. You can’t have accepted any of the assets or received any of the benefits of the assets and then change your mind later on. Basically, you can’t receive the assets, and then decide to give them back as though you didn’t want them in the first place.
Once you accept an inheritance, it’s yours. If you know you intend to disclaim the inheritance, have an estate planning attorney create the disclaimer to protect yourself.
If the disclaimer is valid and properly prepared, you simply won’t receive the inheritance. Instead, the property will go to whomever would have received had you predeceased the decedent. That might be many individuals, so it is important to understand to whom the property will go if you disclaim. It might be based upon the trust or will that named you originally, a beneficiary designation on a financial asset or the intestate laws of the state where the decedent lived.
Once you disclaim an inheritance, it’s permanent and you can’t ask for it to be given to you. If you fail to execute the disclaimer after the nine-month period, the disclaimed property might then be treated as a gift, not an inheritance, which could have an impact on your tax liability.
Persons with disabilities who receive means-tested government benefits should never accept an inheritance, since they can lose eligibility for benefits. Now, some states will consider a disclaimer a transfer for government benefits, meaning you may lose the benefits anyway. So, the best solution is to consult with a lawyer as soon as possible how to handle such an inheritance.
A supplemental needs trusts may be a good solution so the beneficiary with a disability can receive the inheritance without loss of benefits. You can see more on SNTs here. https://www.galliganmanning.com/how-do-special-needs-trusts-work/
The high level of federal exemption for estates has led to fewer disclaimers than in the past, but in a few short years—January 1, 2026—the exemption will drop down to a much lower level, and it’s likely inheritance disclaimers will return. So, if you want to consider a disclaimer, definitely speak to a qualified attorney who can assist you with the process.
Reference: NWI Times (Nov. 14, 2021) “Estate Planning: Disclaimers”