The legal term for rejecting a bequest is disclaiming. When you disclaim a bequest from an estate, you are effectively saying: Treat me as if I had predeceased the person who died and left me the inheritance. Then distribute the inheritance as it would be distributed if I was deceased.
We have all heard about people battling over inheritances. That is commonplace. But people rejecting inheritances? It sounds odd, but the truth is, there are a number of compelling reasons someone would want to disclaim a bequest. Here are five common reasons:
- You do not want to occupy, maintain or repair property that has been left to you. It is too expensive and/or too much trouble to inherit it and hold on to it, even if you plan to sell it in the future.
- The inheritance would put you over the asset threshold and make you ineligible to receive government benefits such as Medicaid.
- If the inheritance was left to you per stirpes, or even if the decedent died intestate, the alternative beneficiaries may be your own heirs. If you disclaim, the funds you disclaim will go to your children. If your children need the money more than you do, and/or if they are in a lower income tax bracket than you, disclaiming may be a good choice.
- You will experience negative tax consequences if you receive the inheritance. A large sum might inflate your estate and make it subject to federal estate taxes. Or it might push you into a higher tax bracket.
- For personal reasons, you just don’t want to take anything from the deceased. For example, if the decedent was involved in shady business practices and you would feel uncomfortable profiting from ill-gotten gains.
Know Who Will Receive Your Disclaimed Bequest
It is important to realize that when you disclaim a bequest, you do not get to decide who receives it instead. Therefore, before you disclaim, make sure you know who the decedent’s estate plan names as the alternate or contingent beneficiary. Disclaiming may be advantageous to you, but it can produce negative consequences for other recipients. Here are some examples of how that could happen:
- The beneficiary who will receive the inheritance instead of you is someone who really should not get it. Examples include someone with a substance abuse problem or creditor issues, or someone who is in the process of divorcing a spouse.
- The beneficiary who will receive the bequest is on Medicaid or other needs-based federal benefits and stands to lose benefits as a result. The inheritance would have to be reported to Medicaid and may cause a loss of benefits.
- Sometimes a disclaimed inheritance will revert to the decedent’s estate. This can result in the need to probate the estate that, but for the disclaimed amount, could have been administered without the family having to deal with the bother and expense of probate.
You Can Pick and Choose What Portion Of A Bequest To Disclaim
You need not disclaim the entirety of a bequest. You may disclaim just a percentage, or one or more specific items. For example, if a parent has left you a brokerage account, and a home in need of expensive repairs, you may decide you want the brokerage account, but not the home. If an IRA has been left to you, for tax purposes you may disclaim all of it, or choose to receive just a percentage of its value.
Filing a Disclaimer
You may be wondering: Can’t I just accept the bequest and then give it away, without bothering with an official disclaimer? The answer is yes, you can. However, creating a legal disclaimer enables you to avoid a host of potential legal and financial complications that can arise if you actually receive the bequest before giving it away.
There are specific rules that govern how disclaimers are handled in Florida. A Disclaimer of Interest, a written document, must be filed prior to taking possession of the asset. Once filed, the disclaimer is irrevocable.
The Disclaimer of Interest must be written in precise fashion and must describe in detail the asset being disclaimed. It must be signed, notarized and given to the probate court in the relevant jurisdiction, as well as to the personal representative of the estate. A parent may also disclaim a gift on behalf of a minor child. Click to read the full Florida disclaimer statute.
An experienced estate planning attorney should always be retained to draft your Disclaimer of Interest. Your consultation should include discussion of the reasons you wish to disclaim, the exact bequest you are disclaiming, and how your disclaimer will likely affect other beneficiaries. The Karp Law Firm can help. Call us at (561) 625-1100.
