Can You Refuse an Inheritance?

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”

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How Does a Special Needs Trust Work?

Special Needs Trusts hold assets for an individual using government benefits to provide for them without losing the benefits.

Clients uses trusts for a lot of reasons, including probate avoidance, creditor protection, privacy and smooth and efficient estate administration.   Some trusts, such as Special Needs Trusts (aka Supplemental Needs Trusts) are used specifically to maintain government benefits for the beneficiary while still providing for their needs.  Not using the right type of trust can lead to financial devastation explains the article “Take special care with Special Needs trusts” from the Herald Bulletin.

The purpose of a Special Needs Trust is to help people because they have a disability and are or may be supported by government benefits.  Most of these benefits are means-tested, meaning, a beneficiary’s eligibility is dependent upon their income, assets or potentially both.  The rules regarding the benefits are very strict. An inheritance may disqualify a person with a disability from receiving these benefits, possibly putting them in dire circumstances.

However, clients may still want to provide for that loved one, and the Special Needs Trust is the way to do it.  The value of assets placed in a Special Needs Trust does not count against the benefits.  However, this area of the law is complex, and requires the help of an experienced elder law estate planning attorney. Mistakes could have lifelong consequences.

The trustee manages assets and disperses funds on a discretionary basis.  Selecting a trustee is extremely important, since the duties of a Special Needs trust could span decades. The person in charge should be ready to work with competent advisors who are familiar with the government programs and benefits and who can advise the trustee of the consequences of disbursements.

These are just a few of the considerations for a trustee:

  • How should disbursements be made, balancing current needs and future longevity?
  • Does the request align with the rules of the trust and the assistance program requirements?
  • Will anyone else benefit from the expenditure, family members or the trustee? The trustee has a fiduciary responsibility to protect the beneficiary, first and foremost.

Parents who leave life insurance, stocks, bonds, or cash to all children equally may be putting their Special Needs child in jeopardy.  What’s more, children who try to provide for their parents often don’t consider that their parents may require governmental assistance at the end of their lives such as long term Medicaid.  Well-meaning family members who wish to take care of their relative must be made aware of the risk of leaving assets to an individual with disabilities, and in fact, good planning suggests including contingent Special Needs Trusts in your estate planning documents.  After all, a loved one might not have a disability when you create your estate plan, but they might by the time they receive from your estate plan.

An experienced elder law or estate planning attorney will be able to create a Special Needs trust that will work for the individual and for the family and can advise you how to include such planning in your estate documents.

Reference: Herald Bulletin (March 13, 2021) “Take special care with Special Needs trusts”

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