Disclaimer Planning for Non-Tax Purposes

/ November 20, 2013

Jamie Held previously discussed how disclaimer planning can be useful in incorporating flexibility in uncertain tax situations, and Jen Santini discussed how to properly disclaim a bequest under MN and federal law. This post focuses on a different aspect: how disclaimer planning can be useful for non-tax purposes.

Disclaimers in General

To review, disclaimers can be used by a Will beneficiary to turn down property or funds left to them in the Will. The amount or item disclaimed then passes to the next beneficiary in the Will as a gift from the decedent, not a gift from the first beneficiary. This means that there are no tax consequences to the first beneficiary for passing the gift along, and it does not eat into their lifetime Gift Tax allowance even if the amount disclaimed is over the annual exclusion amount.

As discussed previously, disclaimers can be useful for maximizing use of tax exemptions when paired with a marital support trust. However, they can also be a useful planning tool for estates that are under the estate tax exemption amount or where tax concerns are not a priority. The reason disclaimers can be useful here is because the option of disclaiming allows post-mortem flexibility.

Creating Flexibility

FinancesWhere can this be most useful? Partners or spouses who want to leave everything to each other in case it is needed for support, but feel that there may be more than they will require. The surviving partner then has the option of accepting everything if they need it, or disclaiming excess assets and passing them on to children (whether or not the children are shared), other family, charities, friends, or other beneficiaries. Disclaimer planning allows the surviving partner or spouse to determine the amount passed to others- this can be useful not only to ensure that they have sufficient funds to support themselves, but also to control how much is sent to a beneficiary if the estate ends up being larger than expected. Instead of giving a set amount or percentage, the surviving partner or spouse can adjust to make a gift that feels appropriate at the time it is given.

Rules

An important note is that the use of disclaimers is only an option when the person designated to inherit does not utilize the assets before the disclaimer has been made. As a reminder, a disclaimer must be made in writing and within nine months of the date of death of the decedent.

If you are interested in learning more about disclaimer planning, be sure to consult an estate planning attorney in your area.

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