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Now Accepting Unwanted Inheritances
Now Accepting Unwanted Inheritances
Michael Wild gives his insight on the benefits of Trust disclaimer provisions
Plantation,
FL,
United States of America
(sardnews.org)
12/07/2011
You must be asking yourself: Why would I ever want to refuse an inheritance left to me? Why would I want to say “No, thank you!” to valuable property left in my name when it only means more money for me?
The answer in one word? Taxes. An intended beneficiary usually rejects property left to them to alleviate their estate tax burden. Another reason is that, sometimes, the intended beneficiary is already financially well off and would prefer the alternate or residual beneficiary to receive that property instead.
I asked Michael to provide a basic understanding of disclaimers. He began by explaining, “A disclaimer provision in your trust is a small but important part of an estate plan. It is a strategy that allows beneficiaries to forego an inheritance for the benefit of avoiding estate and gift tax and for the purposes of allowing a different beneficiary, the next person in line after them according to the decedent’s trust, to enjoy the inheritance.”
Using a disclaimer has its advantages. A disclaimer reduces or avoids certain taxes, most notably the very costly estate tax. If a person’s estate is already large, he or she can disclaim an inheritance to reduce estate tax. A disclaimer also avoids gift tax by allowing the beneficiary to gift the alternate beneficiary without being subject to a gift tax because the interest gifted was never actually owned.
Furthermore, a disclaimer is advantageous because it allows an inheritance to go to perhaps the needier beneficiary. For example, a disclaimer can be favorable if the primary beneficiary is financially comfortable and the alternate needs money, or if the primary has a short remaining life expectancy and the alternate is young and healthy.
Michael provided a hypothetical situation a disclaimer might be used, stating, “A decedent, named Jane, is both a grandparent and parent and leaves an inheritance to her child, John. John decides that he is doing well financially, so instead, wants to use the power of disclaimer to forego the inheritance and allow it to pass to his daughter, Cindy, who is struggling financially. Cindy was the alternate beneficiary according to the decedent, Jane’s, trust. Using a disclaimer, John avoids estate tax, he avoids a gift tax because he never legally accepted the inheritance and then re-gifted it to Cindy, and Cindy benefits from the inheritance. It’s a win for everyone!”
There are of course certain legal requirements for disclaimer. To receive the federal tax benefits for a disclaimer, there are five IRS requirements that must be met. First, the disclaimant must irrevocably refuse any interest in the estate. Second, the refusal needs to be expressed in writing. Third, the disclaimer must be completed no later than nine months after the death of the person leaving the property, or nine months after the day the disclaimant turns age 21. Fourth, the disclaimant must not have, at any point, accepted or benefited from the interest. Fifth and lastly, after disclaimer, the interest must pass to another individual determined by the decedent’s will or trust.
Regardless of whether a disclaimer provision is included in a trust, federal law always permits disclaimers. However, including a disclaimer provision in your trust is a part of a well-written estate plan.
Michael explained: “It allows potential disclaimants to feel comfortable with their decision to use a disclaimer. Sometimes beneficiaries are concerned that not accepting property left to them will go against the decedent’s wishes. If the decedent acknowledges disclaimers in his or her trust, it expresses approval in a way. In addition, disclaimer provisions make some beneficiaries, who do not know about disclaimers, aware that the option even exists.”
Michael continued: “Also, a disclaimer provision is a way of further controlling your estate. The disclaimant is not permitted to direct whom the disclaimed interest goes to. However, the decedent can. A disclaimer provision in the trust can specifically state alternate beneficiaries, whom certain property should pass to in the event of a disclaimer.”
Michael closed by saying, “A good estate plan assures adequate asset protection to make sure your estate is of highest value when distributed to beneficiaries; it assures that the right beneficiaries receive the right property; it assures that the legal process, such as probate administration, moves quickly and painlessly for loved ones. A disclaimer provision in a trust is just another important part of a quality estate plan. It takes care of loved ones by providing them with an option to make life after a death financially easier.”
To find out more about Michael Wild and the law firm of Wild Felice & Pardo PA, please visit: http://wfplaw.com/, or call Michael Wild directly at: 954-944-2855.
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About Wild Felice & Pardo, PA
Wild Felice & Pardo is a law firm in the greater Fort Lauderdale that focuses in the areas of estate planning, asset protection and probate administration. The firm has been serving families and small businesses in South Florida since 2006.
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