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To “Disclaim” or Not to “Disclaim”: That Is the Question

What is a disclaimer? Generally, it is a written, irrevocable decision on the part of an estate's beneficiary to refuse all or part of a bequest. To be effective, a beneficiary must make the disclaimer within nine months of the decedent's death and before the property has been received.

It is also possible to disclaim part of an inheritance. An experienced professional adviser can provide you with details as to how this can be done.

Why would you need a disclaimer? Typically, a disclaimer may be used to allow a family to take full advantage of the breaks in the federal estate-tax law. It could come into play if a married couple has overlooked estate-tax complications. For instance, this often occurs if one spouse leaves all of his or her assets to the other spouse. When the surviving spouse dies, the federal estate-tax exemption is insufficient to cover the estate-tax liability for assets passing to the children.

Currently, the exemption can be used to shelter up to $2 million from estate tax. This figure will increase to $3.5 million by 2009 before the estate tax is eliminated in 2010. However, under a “sunset” provision in the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), the tax is scheduled to be revived in 2011 with a tax exemption shelter of only $1million (based on the exemption prior to enactment of EGTRRA). In other words, unless Congress takes subsequent action, the law reverts to the pre-2001 law after 2010.

A disclaimer may also be used to pass assets directly from a grandparent to a grandchild. Usually, assets that are passed down to a grandchild are subject to a double estate-tax bite: once in the grandparent's estate and then again in the parent's estate.

One potential way around this problem may be to have the parent disclaim the bequest. As a result, the property can then go directly from the grandparent to the grandchild while being taxed in only one estate. Note that amounts above a specified amount passed through a generational “skip” may be subject to a special generation-skipping tax.

A disclaimer may be viable in certain situations, but it can also cause confusion. Make sure that you understand all of the repercussions before you take action. We would be glad to provide assistance upon your request.

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	[ return to list ] To “Disclaim” or Not to “Disclaim”: That Is the Question What is a disclaimer? Generally, it is a written, irrevocable decision on the part of an estate's beneficiary to refuse all or part of a bequest. To be effective, a beneficiary must make the disclaimer within nine months of the decedent's death and before the property has been received. It is also possible to disclaim part of an inheritance. An experienced professional adviser can provide you with details as to how this can be done. Why would you need a disclaimer? Typically, a disclaimer may be used to allow a family to take full advantage of the breaks in the federal estate-tax law. It could come into play if a married couple has overlooked estate-tax complications. For instance, this often occurs if one spouse leaves all of his or her assets to the other spouse. When the surviving spouse dies, the federal estate-tax exemption is insufficient to cover the estate-tax liability for assets passing to the children. Currently, the exemption can be used to shelter up to $2 million from estate tax. This figure will increase to $3.5 million by 2009 before the estate tax is eliminated in 2010. However, under a “sunset” provision in the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), the tax is scheduled to be revived in 2011 with a tax exemption shelter of only $1million (based on the exemption prior to enactment of EGTRRA). In other words, unless Congress takes subsequent action, the law reverts to the pre-2001 law after 2010. A disclaimer may also be used to pass assets directly from a grandparent to a grandchild. Usually, assets that are passed down to a grandchild are subject to a double estate-tax bite: once in the grandparent's estate and then again in the parent's estate. One potential way around this problem may be to have the parent disclaim the bequest. As a result, the property can then go directly from the grandparent to the grandchild while being taxed in only one estate. Note that amounts above a specified amount passed through a generational “skip” may be subject to a special generation-skipping tax. A disclaimer may be viable in certain situations, but it can also cause confusion. Make sure that you understand all of the repercussions before you take action. We would be glad to provide assistance upon your request. [ return to list ]
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