Disclaiming a Gift in a Trust or Inheritance

Suppose someone close to you dies. They leave you a gift in their will or trust but you don’t want it. You may want someone else to get the gift. Or you may not want the gift for tax purposes, so you turn it down. Declining an inheritance is called disclaiming the inheritance.

This article explains disclaiming an inheritance. If you want to decline an inheritance left for you in a trust, contact an estate planning attorney with experience in trusts. They’ll know the proper way to disclaim a gift in your state.

What Is a Disclaimer?

Declining to accept an inheritance is called a disclaimer. When you disclaim a gift, you give up your legal right to the asset. You can reject an inheritance from a will or a trust. You can also decline an inheritance through intestacy. A person dies intestate when they don’t have an estate plan. State law determines who gets the assets from an intestate estate. You can also disclaim an inheritance when you’re the named beneficiary in something like an individual retirement account (IRA), 401(k), or life insurance policy.

What Happens to a Disclaimed Inheritance?

You don’t get to choose what happens to the disclaimed property. Instead, it goes to the next beneficiary in line. It will pass according to state intestacy laws if there’s no beneficiary.

Why Would You Disclaim a Gift?

It may seem odd that someone would turn down a gift. But there are some cases when it could make sense. The following are some examples:

• You want the gift to go to someone else or a charity.
• Accepting the gift would push you into a higher tax bracket. You can turn down the gift to stay in a lower tax bracket.
• Accepting the gift would cause your estate to become taxable. Only estates worth more than the estate tax exemption amount must pay the state and federal estate tax. Disclaiming the inheritance would free your family members and loved ones from dealing with the gift tax liability.
• Estate planning aims to ensure the deceased person’s wishes are carried out. Declining a gift could more accurately fulfill those wishes.
• Accepting the gift could cause you to lose eligibility for government benefits like Medicaid.
• You don’t want the asset. For example, you don’t want the hassle of dealing with a run-down house needing extensive repairs.

How To Disclaim a Gift

No rule or law says when you can or can’t disclaim a gift. It’s your choice. But if you decide to disclaim, you must follow state and federal laws. According to the Internal Revenue Service (IRS), you must do the following to disclaim a gift:

• Disclaim the gift in writing.
• Make the disclaimer within nine months of the death of the person who you’re inheriting the asset from.
• Say specifically in the disclaimer that you are refusing the inheritance.
• Make the disclaimer irrevocable.
• Acknowledge that you can’t receive any benefit from the assets you disclaimed.
• Acknowledge that the disclaimed interests can’t be passed to you in any way.

Your state’s laws may require more. For example, you may have to notarize the disclaimer. In some states, you must notify the probate court that you’re turning down the asset.

You must follow the proper procedure to have a valid disclaimer. A valid disclaimer is called a qualified disclaimer. Without a qualified disclaimer, the government considers you the asset’s owner.

Contact an Estate Planning Lawyer for Help

You may find yourself in a situation where you want to decline an inheritance from someone’s trust. If you don’t, you could face the inheritance tax consequences you were trying to avoid. An experienced trust planning attorney can help. They can explain the tax law implications of disclaiming a gift. They can also help you follow your state’s rule for disclaiming the inheritance.