Kendall and Bexar County Estate Planning
Texas Estate Planning Blog
Most people don’t use a disclaimer because they’re not entitled to other assets to offset the value of the asset disclaimed. They don’t get to decide who gets their disclaimed asset.
MarketWatch’s recent article entitled “Can I reject an inheritance?” explains that the details can be found in Internal Revenue Code §2518. However, here are some of the basics about disclaimers.
In most states, a qualified disclaimer can be filed within nine months of an asset owner’s death. This disclaimer is irrevocable. Therefore, once it’s done, it’s done. This can create problems with IRAs because they have beneficiary designations, and the death claim can be processed with a few forms. As soon as the funds are transferred to an inherited IRA, disclaiming is no longer an option.
When a person disclaims an asset, the asset is distributed as though that beneficiary had died prior to the date of the benefactor’s death. Therefore, with an IRA, it is pretty simple. If you disclaim all or a part of the IRA, the funds pass on, based on the beneficiary designation.
The IRA usually has a secondary beneficiary named. If the beneficiaries in line to inherit the account are who you would want to inherit the account, disclaiming should transfer the account to them. However, if they’re not who you want to get the funds, you have little leverage to do anything about it.
If there are no other beneficiaries and you disclaimed, the money goes back into the decedent’s estate.
The funds would go through probate and be directed based upon his will. If there was no will (intestacy), the probate laws of the decedent’s state will dictate how the assets are distributed.
Having an IRA go through an estate is inefficient, time consuming and adds additional costs beyond the taxes.
All these drawbacks can be avoided, by properly designating beneficiaries.
Being wise with your beneficiary designations, also provides flexibility in your estate plan.
For example, you can set up beneficiary designations to purposely give an inheritor the option to disclaim to other family members, which is done when the primary beneficiary can disclaim to a family member that is in greater need of funds or is in a lower tax bracket.
Reference: MarketWatch (Aug. 25, 2020) “Can I reject an inheritance?”
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