Although inconceivable to some, there are people who choose to refuse an inheritance. That's a personal decision that has legal consequences.
No matter your "why," however, you must carry out the process properly to ensure that your disclaimer is valid, and deal with the ramifications both for you and the estate.
If you refuse to accept an inheritance, you will not be responsible for inheritance taxes, but you'll have no say in who receives the assets in your place. The bequest passes either to the contingent beneficiary listed in the will or, if that person died without a will, according to your state's laws of intestacy.
Reasons for refusing an inheritance
If you think you'd never refuse an inheritance, you may want to consider various situations that might make sense, such as:
- Avoidance of estate taxes. If you want to keep your estate under a certain value to avoid federal estate taxes upon your own death, it may be smart to refuse an inheritance that would push you over that threshold.
- Loss of eligibility for government aid. If accepting the inheritance would push your income over the qualifying amounts for programs such as student loans, Medicaid, or other government assistance, you may want to say no.
- Avoidance of hassle. If the asset in question is something like a run-down house that you'd rather not deal with, you may decide it's best to refuse.
While these are a few of the most common reasons for disclaiming an inheritance, they aren't the only ones.
Because of the many potential circumstances surrounding a decision like this, it is advisable to discuss your options with an experienced estate-planning attorney.
IRS requirements for refusing an inheritance
Under Internal Revenue Service (IRS) rules, to refuse an inheritance, you must execute a written disclaimer that clearly expresses your "irrevocable and unqualified" intent to refuse the bequest. This disclaimer should be signed, notarized, and filed with the probate court and/or the executor of the last will and testament in a timely manner. The IRS time frame is within nine months of the death of the decedent—or if the disclaiming beneficiary is a minor, after they reach age 21.
If you have already accepted the inheritance or any of its benefits, the IRS would likely find the disclaimer invalid. Moreover, the refusal must result in the interest passing "without any discretion on the part of the person making the disclaimer" to the spouse of the decedent or anyone other than the person making the disclaimer.
You may also need to consider state laws regarding disclaimers, which vary by jurisdiction. If you are considering refusing an inheritance, weigh your options carefully, as you cannot later revoke your disclaimer even if you change your mind.
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