How do inheritance disclaimers work?

[Nords]

I'd never heard of a disclaimer until my grandfather died. But when his estate was being probated, my father (the executor) disclaimed his father's estate and passed it (what was left of it) along to our generation. But my father handled my grandfather's legal affairs for over 14 years so I have no idea if a disclaimer has to be written into a will or if a disclaimer can be handled by any heir.

Do all wills include disclaimer boilerplate? If an heir doesn't want whatever is bequeathed them, and if the will doesn't have the disclaimer boilerplate, can the heir still disclaim their inheritance in favor of another heir (like their children)?

In other words, can an heir use the disclaimer process to more or less direct where an inheritance goes, or does that wording have to be in the will? Or would an heir's disclaimer result in the bequest "bouncing back" into the estate to be distributed to the other heirs?

What if the inheritance is an IRA? Can the heir named on the IRA's beneficiary paperwork disclaim the IRA in favor of retitling it FBO their descendants, perhaps even per stirpes?

Is there a "Disclaimers for Dummies" website or book that discusses this subject in detail that's not too heavily filled with legalese?

The reason I'm asking is that spouse and I are looking at updating our estate planning and wondering how a disclaimer should be incorporated into it, into both of our parent's wills, and into our own kid's eventual inheritance. I usually discuss questions of this nature with my BIL the CPA but not this time... at least not yet.

 

[wabmester]

I don't believe the person who disclaims has any control over the direction of the disclaimed assets. That person simply gets bypassed and the assets get redistributed according to the will or probate laws.

I imagine that you can include language in your will that says "X goes to Y, but if Y disclaims X, then X goes to Z." It'd be similar to the case in which Y predeceases Z.

 

[lazygood4nothinbum]

Do all wills include disclaimer boilerplate?

mostly the only mention of generation skipping in mom's 18-plus page will involves some trusts. of generational skipping involving monies outside of trust, the only provision provided concerns itself with taxes paid--that they should be paid out of the portion being transfered, not from within the bulk of the estate itself.

it neither denies nor champions generational skipping. it does specify, however, that should either my brother or myself have had predeceased mom, that our inheritance would have been distributed according to our wills.

 

[macdaddy]

I know that for IRAs, a specific IRA beneficiary form should be filled out; otherwise there can be a lot of problems, particularly with qualified withdrawls based on the life expectancy of the beneficiary. If you retitled the IRA in the name of your daughter (that's what I'm guessing you're going after here?) then the required withdrawl schedule would be based on your life expectancy and not hers (which would be more favorable, tax-wise).

 

[Nords]

I don't believe the person who disclaims has any control over the direction of the disclaimed assets. That person simply gets bypassed and the assets get redistributed according to the will or probate laws.
I imagine that you can include language in your will that says "X goes to Y, but if Y disclaims X, then X goes to Z." It'd be similar to the case in which Y predeceases Z.

That's what I'm afraid of. If that's the way a disclaimer works then a will would have to have specific instructions on what to do if the primary beneficiary wanted to disclaim. For example I'd have to start a dialogue with my father saying "Hey, thanks for thinking of me, but if you are then I'd rather that you considered your granddaughter."

I know that for IRAs, a specific IRA beneficiary form should be filled out; otherwise there can be a lot of problems, particularly with qualified withdrawls based on the life expectancy of the beneficiary.

Yep... I'm wondering what happens if the designated beneficiaries would rather disclaim the inheritance of the IRA. I'd certainly not want an IRA to get disclaimed to the point where it'd be dumped back onto the estate.

 

[macdaddy]

Yep... I'm wondering what happens if the designated beneficiaries would rather disclaim the inheritance of the IRA. I'd certainly not want an IRA to get disclaimed to the point where it'd be dumped back onto the estate.

I will re-read a couple IRA books I have but I think that the IRA either passes to the estate or it passes outside the estate, if and only if an IRA beneficiary form is filled out. If the form is filled out with your name but you disclaim, the IRA could pass to your kid(s) but the required withdrawal schedule would still be based on your life expectancy and not theirs, which is quite a $ difference over time.

 

[gandalf42]

It's easier to think of the IRA structure. You have a beneficiary and then a secondary, third, etc.
If the first is deceased or disclaims inheriting the IRA it drops down to the 2nd, etc. So you can set up an estate with the IRA with the spouse as the first beneficiary. Should the time come, and the spouse decides they are fine financially without the IRA, they can disclaim it and it would then go to the secondary beneficiary i.e. a child. or children.

IRA's with no living or accepting beneficiaries become part of the estate and are distributed per the will.

Wills are similar but more complicated as there can be parallel paths i.e. if the estate is to be split equally amongst three folks and one disclaims, it would be split equally between the other two *unless* there is a qualifying statement of what to do in the case of alternate beneficiaries and disclaimers.

If set up right, disclaiming can allow some direction of proceeds after your death. The choices are fixed by the document though not by decision of anyone including the executor. Only a court can direct how something is paid out if it is not specified in the documents.

 

[macdaddy]

Gandalf - how does that impact the required withdrawal schedule of the inherited IRA? Whose life expectancy is it based on?

 

[SecondCor521]

See my brilliant post in a related thread here:

http://early-retirement.org/forums/index.php?topic=12280.msg225850;topicseen#msg225850

2Cor521

 

[Nords]

See my brilliant post in a related thread here:
http://early-retirement.org/forums/index.php?topic=12280.msg225850;topicseen#msg225850

Well, I completely missed that one. Thanks!

 

[audreyh1]

Interesting question. I have told my father that I prefer my three siblings inherit his estate since my husband and I are well off on our own. I don't know if he has taken action on it. I'm hoping that I can disclaim if he has all four of us inheriting his property. There are we 4 children and no spouse.

Audrey

 

[Texas Proud]

Disclaiming is just saying 'I don't want to accept this property'... that is all the person can do. The asset goes back to the estate and is then distributed as if that person was not in the will....

So, as an example... if granddad left all his assets to his (lets say 3) children per stirpies (sp?? I am sure Martha will help as I am not a lawyer).. the per stirpies says to the child unless he is dead and then to HIS/HERS children...

Now, if the person disclaims... it does NOT go to the children as the person is not dead (stirpies), but goes back to the estate and is distributed to the other two children or THEIR kids if they have already died... so wording is very important..

If you dad was the ONLY CHILD and it was left to him or his children as alternate beneficiaries.... then it would pass to you...

I have a friend who almost got caught in this... he did not want the IRA from his mother and was going to disclaim thinking it would go to his children.. but the will had per stirpies and so his brothers children would have gotten the assets... so he took them and will leave them to his kid in his will...

 

[gandalf42]

Gandalf - how does that impact the required withdrawal schedule of the inherited IRA? Whose life expectancy is it based on?

I believe the IRA is treated as going to a non-living entity such as a corporation and as such will be required to have a 5 year withdrawal rate.

The book "IRA Retirement Timebomb" goes into just about every conceivable variation of how IRA's can get passed down and what the withdrawal rate would be for that circumstance. Afraid my eyes started to glaze over after a while. But seemed every time an entity (i.e. organization, non-living, no heart beat) got the IRA, it had a 5 year withdrawal rate. This is not a big deal for tax exempt charities but hurts the family in taxes if they receive the IRA that way.

 

[hogtied]

In NY State when my grandmother died, my Dad disclaimed the trust money and it by passed him and went directly to the grandchildren. Disclaimer was not part of her will. My Dad initiated the disclaimer 2 years after her death when the trust paid out. I viewed the disclaimer much like a quit claim. It was a fairly easy and straight forward document. I remember that I had to sign off on the disclaimer that I approved prior to it being legally executed.

 

[macdaddy]

I believe the IRA is treated as going to a non-living entity such as a corporation and as such will be required to have a 5 year withdrawal rate.

The book "IRA Retirement Timebomb" goes into just about every conceivable variation of how IRA's can get passed down and what the withdrawal rate would be for that circumstance. Afraid my eyes started to glaze over after a while. But seemed every time an entity (i.e. organization, non-living, no heart beat) got the IRA, it had a 5 year withdrawal rate. This is not a big deal for tax exempt charities but hurts the family in taxes if they receive the IRA that way.

Yeah, for those who don't know, it would be 5 years versus something like 60 years for a 20 year old who inherited the same IRA, if the beneficiary form was properly filled out.

 

[SecondCor521]

I'd never heard of a disclaimer until my grandfather died. But when his estate was being probated, my father (the executor) disclaimed his father's estate and passed it (what was left of it) along to our generation. But my father handled my grandfather's legal affairs for over 14 years so I have no idea if a disclaimer has to be written into a will or if a disclaimer can be handled by any heir.

Do all wills include disclaimer boilerplate?

No. My first will did not.

If an heir doesn't want whatever is bequeathed them, and if the will doesn't have the disclaimer boilerplate, can the heir still disclaim their inheritance in favor of another heir (like their children)?

The heir can disclaim their inheritance, but then that inheritance is treated as though the person disclaiming had predeceased the person who's will is under discussion. You can't simultaneously disclaim and then direct your inheritance to another party. So if your dad gives 50% of his estate to you and the remainder to the Hawaiian Humane Society, and you disclaim, 100% goes to the Humane Society. If you want 50% to go to your daughter, you have to accept it and then gift it or bequeath to her through your own will.

In other words, can an heir use the disclaimer process to more or less direct where an inheritance goes, or does that wording have to be in the will?

The wording is in the will, in effect. The author of the will should write it being aware of the potential for disclaimer.

Or would an heir's disclaimer result in the bequest "bouncing back" into the estate to be distributed to the other heirs?

The bequest is treated as though the heir had predeceased, so whatever the will says happens in that case happens.

What if the inheritance is an IRA? Can the heir named on the IRA's beneficiary paperwork disclaim the IRA in favor of retitling it FBO their descendants, perhaps even per stirpes?

In reading up on this (http://personal.fidelity.com/products/retirement/inheritedira/fromspouse.shtml) if you disclaim an interest in an inherited IRA, your portion goes to the "next eligible beneficiaries". So again, it would depend on how the beneficiaries were named on the IRA. It seems that if you are named as a beneficiary of an IRA that you can disclaim a part of your portion of the IRA, whereas with a will you cannot do partial disclaimers (but I think if your dad says you get 50% of his estate and a violin, you can disclaim the violin but still get the 50% of his estate).

I don't think you can do a "per stirpes"-style beneficiary election on an IRA, but I could be wrong on that.

Is there a "Disclaimers for Dummies" website or book that discusses this subject in detail that's not too heavily filled with legalese?

No idea.

IANAL.

2Cor521

 

[gandalf42]

In NY State when my grandmother died, my Dad disclaimed the trust money and it by passed him and went directly to the grandchildren. Disclaimer was not part of her will. My Dad initiated the disclaimer 2 years after her death when the trust paid out. I viewed the disclaimer much like a quit claim. It was a fairly easy and straight forward document. I remember that I had to sign off on the disclaimer that I approved prior to it being legally executed.

I would guess that the children were alternate beneficiaries to your dad per the guidelines of the trust. So since the trust was controlling the money at that point (not the will) he could disclaim it sometime after the death and will.

 

[hogtied]

We were listed as beneficiaries of the trust equivalent to my Dad but not as alternates. We also rec'd $$ from the trust outside and in addition to my Dad's disclaimer

 

[hogtied]

"outside" wrong word, should say "within"

 

[gandalf42]

We were listed as beneficiaries of the trust equivalent to my Dad but not as alternates. We also rec'd $$ from the trust outside and in addition to my Dad's disclaimer

OK, so your dad's share was just re-redistributed amongst the other co-beneficiaries. But who those co-beneficiaries were was determined by the wording of the trust document.

 

[SteveR]

When my wife passed away I disclaimed some joint assets and moved them into her trust for her beneficiaries after I die. I had to write an official letter to her Trust within so many days of her death and then actually transfer the assets into the name of the new trust (name of trust changes after death). Her "new" trust then held, in the name of her new trust, the disclaimed assets from our combined estate that would have passed to me at her death.

I don't have a disclaimed asset clause in my own trust nor in my new wife's trust or in our wills. I can't imagine any of our kids disclaiming anything of value from us.

BTW, being a trustee is a pain at times. The trust generates some income from divideds and interest so I have to file estimated payments and also file a tax return for the trust; both Fed. and state. Tax rates on a trust are higher than on an "individual" which requires a fair amount of the income the trust generates to be used to pay the taxes. The trust has unique checking, savings and MM accounts which are used to capture the cash from account sweeps and then I move it from account to account as needed to pay legal and tax expenses incurred by the trust; which does add up to a few thousand $$$ a year. There are times when I would just like to disolve it now and give away all the assets to the heirs but the trust does not allow that unless I am willing to take on all the tax hit if I were to do that. Not yet.

 

[bosco]

I lived in a rental house once, and had a clause in my lease to have the right to make a first offer if the house were to be placed on the market. The owner of the house died in a car accident, and left the house to his ex. She disclaimed the house (I assume that's what she did--she declined to take title).

I was told the estate was going to sell the house. IIRC, the same ex-wife was executor. I did a little research, found out the remaining loan balance, and made an offer of the outstanding balance plus $1500 for attorney fees. The offer was accepted. I assume the estate came out relatively neutral on the transaction.

I'm not sure why the ex didn't want the house, other than fear and lack of local knowledge. I think she must have questioned whether the house could be worth the outstanding balance. Since the house was in a desirable area of downtown Juneau, I just couldn't imagine it wouldn't be worth the balance on the loan. It had been hit by a mudslide a couple of years earlier, had an encroachment issue with a porch, and had had a carpenter ant infestation (which had been mitigated). I held the house for 6 years, and sold it for nearly double what I paid. By then I had resolved the encroachment. The hillside above had been stabilized by the city. Yearly $100 preventative spray kept any ants at bay. Worked for me

 

[Sparks]

In NY State when my grandmother died, my Dad disclaimed the trust money and it by passed him and went directly to the grandchildren. Disclaimer was not part of her will. My Dad initiated the disclaimer 2 years after her death when the trust paid out. I viewed the disclaimer much like a quit claim. It was a fairly easy and straight forward document. I remember that I had to sign off on the disclaimer that I approved prior to it being legally executed.

I was the successor trustee and executor of my father's estate - I remember his attorney said that if the heirs wanted to disclaim the inheritance, it had to be done with 9 months of his date of death. I am not sure if that is a California specific regulation