Disclaiming an Inheritance (It's More Common than You Think)

If you stand to inherit, you may be thrilled about your upcoming windfall, but if you find that the circumstances don't align with your plans or values, you may consider disclaiming an inheritance. For instance, if you have been far more fortunate than your siblings and feel that they or their children would benefit more from the family estate, you may choose to renounce your right to inherit.

Whatever your reasons, there are a few valid reasons to consider disclaiming an inheritance. And as surprising as it might be, you can dodge an inheritance. All you need to do is prepare a legal disclaimer.

Disclaiming an inheritance usually entails creating a legal document that unequivocally states that you relinquish your right to inherit whatever assets you stand to inherit once your inheritance owner has died.

Simply making an informal statement is not enough. Should you choose to do so, you must satisfy the requirements for a legal disclaimer to entirely cut yourself off from an inheritance.

Why Would You Consider Disclaiming an Inheritance?

Carrying on your family's financial legacy can be a great and noble thing. But it's also normal to disagree with how your parent, grandparent, or other relative has approached the topic of dissolving their fortunes after death.

First, it's important to note that there are no concrete prerequisites for disclaiming an inheritance, aside from the obvious: you must be inheriting something to begin with. Once you are, you have several reasons why you might want to disclaim it:

• Claiming this inheritance would balloon your income and push you into a new tax bracket, costing you much more of the inheritance than if someone else in your family were to receive it (effectively causing more of your family's money to go towards the government's coffers).
• Claiming this inheritance would throw a monkey wrench into your careful estate plan and cause you to owe significant state or federal estate taxes if you were to pass away shortly after.
• You feel like you aren't the best candidate for whatever you stand to inherit, and you have someone else in mind (who happens to be next in line to claim an inheritance).
• This inheritance would disqualify you from receiving crucial government benefits, including healthcare and student loan forgiveness. While you might have taken the money five years ago or might take it if offered to you in the future, now would be the wrong time.
• You're financially stable, but someone in your family isn't, and they are not receiving a commensurate inheritance.
• You don't want the house/vehicle/lot or whatever it is being distributed to you. You might have taken your mother's beloved Corvette, but you have no interest in her vacation cottage and don't care to go through the process of managing and eventually selling it.

At the end of the day, however, you do not need to admit nor clarify why you wish to disclaim your inheritance. However, you must go through specific steps to properly distance yourself from whatever may be bequeathed to you.

How Do You Go About Disclaiming an Inheritance?

Disclaiming an inheritance is relatively simple. While you do not strictly need the services of a legal or financial professional to do so, one is still very much recommended. Not only could a financial advisor help you create a succinct disclaimer, but they could also advise you on alternative courses of action. These include the following:

1. Your disclaimer must establish in no uncertain terms that you knowingly and willingly refuse to accept the assets that you stand to inherit.
2. It must establish that you understand that this is irrevocable – meaning, once you say no, you can't ask to walk back on your disclaimer.
3. Your disclaimer must be established and legally binding within nine months of your loved one's death. If you know beforehand what you stand to gain from an inheritance, your best action would be to talk to your loved one rather than create a legal disclaimer.

But nine months is your limit if you decide to disclaim your inheritance during probate.

Beneficiaries who are not of legal age are an exception. They can disclaim an inheritance at any point within nine months after reaching the age of majority.

You must establish that you understand that you will receive no benefits from the assets that you decide to disinherit. You must also know and establish that they cannot and will not pass to you in any other way, whether directly or indirectly.

Once you have all of this in writing in the prerequisite legal language – with no uncertain terms and no room for ambiguity – your next steps depend on the state you stand to inherit. Certain states require notarizing a disclaimer for it to be valid. In other states, you need witnesses of legal age who do not stand to benefit from you disclaiming your inheritance. In certain states, the disclaimer must be shared with the court, the estate's executor, or just the court, the executor, or both, and the remaining beneficiaries in question.

Who Receives Your Inheritance?

The next in line, either as per intestate law (i.e., the state's rules for who inherits if no will exists) or whoever counts as the next of kin.

Whatever eventually happens to it, it's also important to note that you will have no say in the matter. You cannot control who gets to keep the assets you disclaim.

This also means you cannot explicitly dodge an inheritance only to wish for it to be given to your younger sibling or your child. Generally speaking, the next beneficiary on the list (however the will is written) will be granted the inheritance that you decide to disclaim.

This knowledge is essential because you may be inadvertently dooming someone. If the next beneficiary in the list relies on their current financial status to continue to claim Medicaid benefits, for example, and the inheritance they originally stood to gain accounted for this, adding your inheritance on top may disqualify them. Be sure to discuss the matter with your other beneficiaries if you choose to disclaim your inheritance. Consider discussing with an estate planning professional at Werner serving Santa Barbra, Santa Clarita, Simi Valley, and Westlake Village.