What Do You Mean You Do Not Want My Money?


Michael Anicito, CFP®, AIF 

Disclaiming an Inheritance

Believe it or not there may be reasons why you might want to disclaim or not take possession of an inheritance left to you. Especially since the passing of the SECURE Act (see my article), disclaiming an inheritance may be in the best interest of your family’s legacy.

Federal law states that an individual cannot be forced to take ownership of someone’s assets if they are named as a stated beneficiary. Under IRC Section 2518(b), an individual has the option to refuse an inheritance or gift as the primary beneficiary of a deceased account owner.

If the beneficiary decides to disclaim the asset, this is an irrevocable decision. The inheritor has 9 months to decide on whether they intend to disclaim. By disclaiming, you do not get to dictate who then takes possession. If you disclaim, the inheritance will flow down to the next beneficiary. More importantly, the inheritance would not be considered a taxable gift by the disclaimant.

So why would you not want this newfound wealth? There could be many reasons. As mentioned above perhaps you want to gift assets away and your child is next in line. You can disclaim and even if the amount is over $15,000 (gift limit) you can pass it on to your child without incurring a gift tax. Another reason might be that you are below the threshold for certain benefits and by getting this inheritance would make you ineligible. This idea would remain true for government benefits, tax credits, and tax deductions that are means tested.

Another often over-looked reason may be to correct gifts. There have been more than a few times that I’ve experienced a client passing away and leaving and uneven amount of gifts to his/her children. Many times, the children recognize this error and are more than willing to make it right. By disclaiming they can achieve this goal.

Again, this decision to disclaim is an irrevocable one. It is also not all or nothing. You can disclaim a portion of the balance left to you. That is why it is imperative to consult with your estate and tax planners if you think this decision might be right for you.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

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