While an inheritance is usually desired, there are some circumstances in which it might be unwelcome. If you don’t want an inheritance, you must disclaim it.
Most people who receive an inheritance are honored, but for some, it can be more of a burden than a blessing. The following are some reasons why an inheritance may be unwanted:
- Taxes. If the inheritance would bump your estate above the estate tax exemption amount, when you die, your estate would taxed at 40 percent, under current federal rules.
- Income. If the inheritance is income producing, it could push you into a higher income tax bracket.
- Litigation or bankruptcy. You are in a position to be sued or you think you will soon be going through bankruptcy and are likely to lose the inheritance anyway. Note that if you are currently going through bankruptcy, you may not be able to disclaim an inheritance.
- Inability to maintain. The inheritance involves a piece of property or something else that you would be required to maintain and you are not in a position to do so.
- Honoring the decedent’s wishes. Circumstances may have changed since the drafting of the will that mean that keeping the inheritance does not honor the decedent’s wishes. For example, a parent may have meant to leave assets of equal value to each of their children, but the assets may have increased or decreased in value, making the inheritance unequal.
In order to officially disclaim an inheritance, the IRS sets the following requirements:
- You must provide written notice to the executor or administrator of the estate that includes a statement that you are disclaiming the assets and that the decision is irrevocable.
- The statement must be provided within nine months of the decedent’s death (minors have until they reach the age of majority).
- You cannot benefit from the disclaimed property, directly or indirectly.
You have no say in who gets the inheritance once you disclaim. The inheritance would be treated as if you died before receiving it. It would go to the contingent beneficiary named in the will or if there is no will, it would go to the next person in line under state law.
Disclaiming may not be the best option for Medicaid beneficiaries. If you are receiving Medicaid benefits and disclaim an inheritance, that disclaimer may be considered a transfer of assets and make you ineligible for Medicaid for a period of time.
You can schedule an appointment with the Law Office of Antoinette Bone in our Euless, Texas office by clicking the button below, or by calling us at (817) 462-5454.
To comply with the U.S. Treasury regulations, we must inform you that (i) any U.S. federal tax advice contained in this newsletter was not intended or written to be used, and cannot be used, by any person for the purpose of avoiding U.S. federal tax penalties that may be imposed on such person and (ii) each taxpayer should seek advice from their tax advisor based on the taxpayer’s particular circumstances.
Nothing in this message is intended to provide legal advice. This message is for educational purposes only.