A “disclaimer” is a legal document which is signed by somebody before they receive property to which they are entitled from an estate or trust.
There are many situations in which a person is about to inherit money but doesn’t want to receive it for some reason, or wants it to go to somebody else. Let’s see what can happen under these circumstances. Each person’s situation is unique, and this post is not intended to provide legal advice to be applied to any reader’s particular interest or circumstances. This information is general in nature.
The disclaimer of inheritance document is filed with the Surrogate — in the case of probate assets passing under a Will. The disclaimer of distribution document is filed with a Trustee who is preparing to distribute assets to the Trust’s beneficiaries. The disclaimer says that the intended beneficiary is releasing, disavowing and giving up their legal right to receive the assets. The specific assets being disclaimed need to be listed on the document. The asset might be real estate, securities, a dollar amount of cash, other specified assets, or something like “all of my residuary share under the Will of X admitted to probate by the ___ Surrogate on DATE,” or “my distributive share under the XYZ Trust.”
Under certain circumstances, refusing to accept assets that you are legally entitled to receive can have consequences. For example, the Medicaid and SSI programs will treat disclaimer as a transfer (gift) which could result in a transfer penalty and loss of benefits. A person who is in default of creditors may create legal problems for himself if he disclaims assets. Disclaimer might have an impact on matters being handled through the family court or bankruptcy.
Then there’s the question of who receives the assets? Years ago I was handling an estate in which the property was the only asset of the estate, and it was going to pass to the decedent’s eight children under her Will. The Executor – my client – called me and said “we all just want the property to pass to the three of us who live in the house, so 5 of us want to give up our rights.” Now the default of the law is that disclaimed assets pass as if the disclaimer had predeceased the decedent — in other words, as if they had already died. The Will in this case specified that if any of her children had predeceased, their share would pass to their own children. In this particular estate, there were lots of grandchildren from the 5 would-be disclaimants, and many were minors. So disclaiming was not going to accomplish what they wanted to accomplish. A different plan had to be worked out.
In certain Wills, there is language specifying that the estate is left to the surviving spouse, but if s/he disclaims any assets, the assets shall pass to a certain type of Trust for benefit of the surviving spouse, to be funded with that inheritance. In that situation, disclaimer won’t pass the assets down to the next generation right away.
In sum, disclaiming is sometimes a useful strategy provided that the beneficiary gets legal advice ahead of time to evaluate the pros, cons and timing of the strategy.
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