Taxation & Estate Planning

Post-Mortem Estate Planning with Disclaimers

By Jeramie Fortenberry

A disclaimer is a refusal by someone to accept property that was left to them through a trust or estate. The person signing the disclaimer makes an irrevocable and unqualified decision to refuse any interest in the disclaimed property.

Disclaimers are incredibly useful for straightening out tax planning and drafting problems with an estate plan.  The disclaimer allows a ?second look,? giving attorneys the ability to rewrite portion f of the estate plan to reach tax or practical goals or to fix problems with the estate.  Common examples include:

• Avoiding generation-skipping transfer tax problems;
• Asset protection by preventing disclaimed property from becoming subject to a beneficiary?s creditors;
• Remedying the failure to make full use of the decedent?s annual exclusion amount;
• Adjusting between the credit shelter and marital deduction bequests in a decedent?s estate; and
• Preventing acceptance of problem assets, such as environmentally-contaminated real estate.

Qualified Disclaimers

All disclaimers should be ?qualified disclaimers,? a term of art referring to disclaimers meeting the requirements of Section 2518(a) of the Internal Revenue Code.  If the disclaimer is a qualified disclaimer, it is treated as though it had never been transferred for tax purposes.  In order to qualify, the disclaimer must meet the following requirements:

• It must be irrevocable.  The disclaimant can?t leave open the possibility of changing his or her mind.
• It must be unqualified.  The disclaimant can?t make the disclaimer contingent on anything or redirect the distribution of the asset.
• It must be in writing.
• It must be delivered to the transferor of the interest, or his or her legal representative, or the holder of legal title to the property within 9 months of the later of:
  • The date upon which the transfer creating the interest is made or
  • The date upon which the disclaimant turns 21.
• The disclaimant must not have accepted any interest in the disclaimed property or any of it?s benefits.
• The disclaimed interest must pass to the surviving spouse of the decedent or some other person without any direction by the disclaimant.

Partial Disclaimers

The Internal Revenue Code allows partial disclaimers.  As long as the requirements of Section 2518(b) are satisfied, the transfer of an undivided portion of an interest in property is treated as a qualified disclaimer of that interest.

Full post as published by Death and Taxes Blog on April 13, 2012 (boomark / email).