Question: After my father died last year, I received notice that I was a beneficiary of a trust. The money in the trust was not really my father’s but rather an inheritance he received from his uncle.
I have been processing the passing of my father and the family dynamics involved with that, and I have struggled to come to grips with whether I should take the inheritance or not. For my own deeply personal reasons, I have decided that I don’t want to accept the money.
What should I do to refuse it, and is there any way to first find out who the alternate beneficiaries are? I’m wondering if it will just present my own kids with the same issue.
Answer: You are obviously a person of real principle to turn away the principal in this inheritance. Not many people refuse a gift such as the one your father has provided, but I am sure you have good reasons.
What you are referring to is known as “disclaiming” an inheritance. Disclaimers are typically done for tax purposes, where the surviving spouse or other beneficiary seeks to limit his or her taxable estate for estate planning purposes. Under the new tax plan, an individual’s estate is not subject to estate tax until it crosses the $11.2 million threshold. So this particular estate tax problem usually afflicts the wealthy.
But there are some states — outside of California — that still have their own estate tax with exemptions well under $11.2 million, and it might make sense for a person of more moderate means to make a disclaimer. Seek good legal advice when making a disclaimer for tax purposes. This is not one to do on your own.
The other time when someone may disclaim an inheritance is to thwart a creditor. If a creditor, such as an ex-spouse or disgruntled business partner, is at the beneficiary’s door, it might make sense to disclaim the inheritance so that it’s close by — usually with the beneficiary’s kids — but out of the creditor’s reach.
Handing money over to your children to avoid a creditor is usually against the law — known as a fraudulent transfer. But under state law, a disclaimer is not a fraudulent transfer.
Note, however, that the federal government doesn’t allow a taxpayer to disclaim an inheritance to avoid federal tax liens. Although we may not see a unanimous U.S. Supreme Court on many issues, the justices were all aligned on this one. You cannot disclaim to avoid debts due to Uncle Sam.
In addition, a disclaimer must meet certain requirements to qualify under federal statutes, and it must be executed not later than nine months after the death of the decedent. Again, you will want to seek good legal advice on this.
When properly executed, the disclaimer will treat the disclaiming party as if he or she predeceased the decedent. You ask about the alternate beneficiaries in your situation. That information would be found in your father’s trust, which as a beneficiary you are entitled to receive.
In most trusts, a parent will provide for a child and, in the event that the child predeceases the parent, the gift will go to the child’s “issue.” Issue means one’s lineal descendants or children. It is likely that the disclaimed funds will go to your children, but verify this with the trust instrument.
What I would love to know is the primary reason why receipt of this gift fills you with so much unease that you would prefer to not even touch it. Whatever that reason may be, perhaps you should consider accepting the money and redirecting it toward some charity or other organization that could serve the common good.
On top of serving a good cause, you may even be able to take a federal tax deduction. Again, the new tax law has made some changes to charitable donations, so you will want to consult a tax professional.
The ultimate decision lies in your principles. If timing permits, you can opt to disclaim the gift, which would pass to the next in line beneficiaries in the trust. But if you believe that your kids would not or should not have this money, maybe you take control of the gift yourself and transfer the money to someone or someplace that could use it for the greater good.
Preston Morgan is a partner at Kopper, Morgan & Dietrich, a Davis law firm providing family law, estate planning and trust litigation representation. His column is published every other week in the Davis Enterprise. To pose a question to Preston Morgan, contact him at https://kopperlaw.com.
Disclaimer – The information you obtain at this site is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation. Any information, testimonials, or reviews on this website are not provided as a prediction, guarantee, or warranty of any particular result in your legal matter. We invite you to contact us and welcome your calls, letters and electronic mail. Contacting us does not create an attorney-client relationship. Please do not send any confidential information to us until such time as an attorney-client relationship has been established.