
In
order to be a qualified disclaimer, it must satisfy all of the following: 1) it
must be irrevocable and unqualified; 2) it must be in writing and signed by the
recipient; 3) it must be delivered to the transferor or his or her
representative; and 4) it must be made within 9 months of the date that the
property interest was created (unless the recipient is under 21 years old, in
which case he or she has until 9 months after his or her 21st
birthday to disclaim). It is also important to note that you cannot disclaim an
interest in property once you have already accepted it.
The
main question that arises from this is “WHY?” Why would anyone refuse a
valuable gift/bequest? The answer depends on the financial state of the recipient.
In conjunction with their financial situation, the gift amount needs to be
analyzed in light of the individual’s remaining unified credit (estate and gift tax) exemption
amount ($5,450,000 in 2016). The reason being it would be unwise for a
recipient to accept a large financial gift or bequest (especially if it is not
needed for financial well-being), only to ultimately pay estate tax on the value
of the disclaimed asset at the time of his or her death.
For
example, a widow dies leaving all of her property to her son. The will also
provides that if her son does not survive, her estate is to be divided equally
to her son’s children. Furthermore, let’s assume in this example that the son
does not need the money and has used up his entire $5,450,000 exemption amount
through gifts during his lifetime. If the son makes a qualified disclaimer, the
property will pass directly to his children and he will not be deemed to have
made a taxable gift to his children.
Although
it may seem illogical to decline a significant gift, a disclaimer is an
important estate planning technique that provides flexibility with the
ever-changing unified credit exemption amount and the desire to reduce one’s
taxable estate.
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