Many people, even estate planning attorneys, forget how useful disclaimers can be. Disclaimers are a way of saying “No, I don’t want that property.” Why would someone want to do that? Perhaps they just don’t need the money or other property. Perhaps they have a taxable estate and don’t want to compound their tax problems. Perhaps they would prefer it go to someone else, like their adult child.
A “qualified disclaimer” allows someone to renounce property which would otherwise come to them and treat it as though they predeceased the person who gave or bequeathed it to them. For a disclaimer to be “qualified” it must be:
- Written. It must be in writing.
- Irrevocable. It must not be contingent or subject to being changed or reversed. It cannot be qualified in any way.
- Timely. It must be received by the transferor within 9 months of the transfer (or 9 months of the beneficiary turning age 21).
- Prior to any acceptance. The beneficiary must not have accepted the property or the benefits from the property.
- Uncontrolled. The disclaimer cannot attempt to direct to whom the property goes. The property must go without direction to whomever it would go if the disclaimant had predeceased.
There are many ways a disclaimer may be useful, so always consider this alternative.
In PLR 201407009, an irrevocable trust was set up for the settlor’s descendants in 1977. More than 35 years later, a descendant who would become eligible to receive assets under the trust was approaching the age of majority and asked if they could disclaim. The Service opined that they could, as long as the disclaimer otherwise met the rules of the disclaimer statute, section 2518 of the Code. The unsurprising result in this PLR demonstrates that the opportunity to use a disclaimer may still exist years after the trust was established.
In the right situation, a disclaimer can get assets to the intended people avoiding considerable amounts of tax. The attorney who comes up with the idea to disclaim in those circumstances will have a feather in their cap and, likely, a very grateful client!
Stephen C. Hartnett, J.D., LL.M.
Associate Director of Education
American Academy of Estate Planning Attorneys, Inc.
9444 Balboa Avenue, Suite 300
San Diego, California 92123
Phone: (800) 846-1555