In last week’s blog, I discussed alternate valuation. I discussed how the date 6 months after the decedent’s death could be used to value the estate if both the estate tax and the estate value were reduced as a result of the alternate valuation election. I also discussed how a disclaimer could be used to create a tax which would be reduced by the election. But, what is a disclaimer?
A disclaimer is a refusal to accept something which you would otherwise get. A “qualified disclaimer” is not treated as a transfer by the disclaimant, pursuant to section 2518 of the IRC.
The requirements for a “qualified disclaimer” are outlined in section 2518.
- The disclaimer must be in writing. Part of this requirement is that it must be an unqualified refusal. You cannot say, “I don’t want it, but send it to X.”
- The disclaimer must be timely. Simply stated, the disclaimer must be within 9 months from the date of the transfer or 9 months from the date of the disclaimant’s 21st birthday. So, the clock starts to tick at commencement of the period. The disclaimer must be received by the transferor (the transferor’s legal representative, or the holder of the property) by the expiration of the period. Absolutely no extensions are possible. So, it is best to get it done well before the deadline and not wait to the last possible moment.
- There must be no acceptance of benefits. There must be no acceptance of the benefits of the property prior to the disclaimer. This would include the use of the property, its rents, dividends, etc. It also includes directing others regarding the property. Any payment for the disclaimer is an acceptance of benefits from the property. Further, any exercise of a power of appointment over trust property is an acceptance of the benefits of the trust. Pledging the asset as security for a loan is also acceptance.
- The interest must pass to another without direction. This actually consists of two requirements. First, the interest must pass without direction on the part of the disclaimant. Second, it must pass to someone other than the disclaimant, unless the disclaimant is the surviving spouse. While the interest may end up going to the surviving spouse, even the surviving spouse cannot retain direction.
- State Law. State law may pose additional requirements. For example, a disclaimer may need to be filed with the probate court or elsewhere to be effective.
A disclaimer can have a variety of uses, including allowing alternate valuation. Perhaps the most frequent use is when the beneficiary just does not need or want the assets and the acceptance would increase a transfer tax problem for the beneficiary.
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
www.aaepa.com
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