Qualified Disclaimers

Believe it or not, some people may not desire to receive an inheritance. Reasons for this could be many. Perhaps an inheritor is doing very well financially but wants to benefit a less wealthy sibling that may need the assistance. Or, the inheritor may already be in a very high income tax bracket and the required distributions from an inherited IRA will simply amplify their existing tax bill. This later situation may become more commonplace due to the Secure Act’s (see blog posting dated January 20, 2021) elimination of the “stretch IRA strategy” for non-spousal beneficiaries. Beneficiaries could have been designated decades ago and never updated. Yet, the passage of time can certainly affect the financial circumstances of these heirs.

Someone who desires to disclaim an inherited asset cannot merely refuse to accept it. Nor, can they simply give it away. A disclaimer that does not meet basic requirements under federal and state law could cause adverse consequences for the person disclaiming the assets as well as any subsequent beneficiaries. The beneficiary disclaiming the assets is not allowed to name who is next in line. Rather, the inheritance must pass to the contingent beneficiary (ies) named in the particular plan document/IRA adoption agreement or estate planning document that governs the disclaimed asset. The disclaimer must meet certain requirements so as to be deemed a “qualified disclaimer.”

To be “qualified”, a disclaimer must meet the following conditions:

• The original beneficiary must not have accepted any of the inherited assets prior to executing the disclaimer.
• The original beneficiary must provide in writing an irrevocable and unconditional refusal to accept the assets.
• The document must be presented to the probate court, or applicable account custodian (for employer retirement plans, or IRA’s) no later than nine months after the death of the account owner.

Some states may require the disclaimer to include a statement that the person disclaiming the assets is not subject to any bankruptcy proceeding. In fact, it is possible for a disclaimer to be qualified under federal laws, but not valid under a particular state’s laws. For that reason, anyone who is pursuing a disclaimer strategy is encouraged to seek both tax and legal advice on the applicable laws of their state of residence.

If you would like to learn more about these and other wise financial planning moves, please contact us through our Level 5 Financial LLC website or via phone at 719-323-1240.  This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice.  You should consult your own tax, legal and accounting advisors before engaging in any transaction.