The disclaimer option is a commonly overlooked yet powerful postmortem estate-planning vehicle available to most beneficiaries, personal representatives and other appointed executors. By definition, a disclaimer is a refusal by a beneficiary to accept a specifically designated asset, allowing for more flexibility in the transfer of assets upon an individual’s death.
In my opinion, the use of the disclaimer will only continue to gain popularity as numerous “sunset provisions” loom over favorable estate planning tax laws that originated from the Economic Growth and Tax Relief Reconciliation Act of 2001. The increasing uncertainty in tax law at the time of a decedent’s death could open the door to increased disclaimer use.
There are many potential opportunities for utilizing a disclaimer–let’s take a look at a few general scenarios:
? Spousal beneficiaries may wish to disclaim assets in order to let property pass to a contingent beneficiary, in most cases children or grandchildren. Doing so allows for the maintenance of the applicable estate tax exclusion and thus avoids possible unnecessary estate taxes.
? Disclaiming is commonly used when a parent seeks to pass assets to the next “in-line” beneficiary after receiving a large inheritance, generally from his or her parents or grandparents.
? Possibly the most broadly applied use of the disclaimer is when an unrelated individual wants to make tax-exempt gifts to a remaining contingent benefactor. As broad as the application may be, the use of disclaimer in this instance is quite specific and situational.
How does one apply a disclaimer? First, it must ultimately be considered qualified, which means a few conditions must be met. The disclaimer must be irrevocable and unconditional; it must also be written, specific, signed and delivered within a 9-month period.
Furthermore, the disclaiming beneficiary must not have incurred any acceptance of benefits from the assets, and the assets must pass without direction or discretion on behalf of the disclaiming party. It is also important to note that state laws control disclaimer requirements and they may vary among states.
Under disclaimer provisions, some possible situational disclaiming applications include disclaiming less than one’s entire interest, disclaiming qualified plan benefits and the disclaiming of property and powers by fiduciaries.