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Legal How-To: Disclaiming an Inheritance

By Daniel Taylor, Esq. | Last updated on

Although an inheritance of money, property, or other assets is often a welcome gift for the recipient, there are circumstances in which a person may want to disclaim a gift from another person's estate.

For example, a person whose own estate may already be at or near the limit of the federal estate tax exemption may choose to disclaim an inheritance for tax purposes. Disclaimers may also be used to take advantage of marital deductions or to prevent a beneficiary's creditors from making a claim on property that he or she inherited.

So how do you legally disclaim a gift or bequest made by another person' estate? Here's a general overview:

How to Make a Qualified Disclaimer

Under IRS rules, there are five requirements that a person must satisfy in order to disclaim an inheritance:

  1. The disclaimer must be irrevocable and unqualified.
  2. The disclaimer must be in writing.
  3. The disclaimer must be completed within nine months of the death of the person who left the bequest.
  4. The person making the disclaimer must not accept any benefit from the disclaimed property.
  5. The interest disclaimed must pass to someone else "without any direction on the part of the person making the disclaimer."

If these conditions are satisfied, the property will pass as if the person making the disclaimer had predeceased the person making the gift. The disclaimed property will then pass to whoever is specified by the will, trust, or other instrument, or by the operation of law.

The disclaimed property will also not be treated as a transfer or a gift by the person making the disclaimer. This allows the person making the disclaimer to avoid the tax issues that would otherwise be involved with accepting the inheritance and then giving the inherited property as a gift or transferring ownership to another individual.

Need More Help?

If you are dealing with a large or complicated inheritance, or need advice on whether a disclaimer is right for your situation, your best option may be to seek the help of an experienced estate planning lawyer.

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