What is a Disclaimer in Estate Planning?

A disclaimer is a technique in estate planning whereby a beneficiary refuses to accept an asset that has been given to him. If someone makes a gift or leaves certain assets or even their entire estate to a beneficiary and the beneficiary “disclaims” it (refuses to accept it), the assets pass to someone else.

There are a number of reasons why someone would want to “disclaim” property. One reason to “disclaim” is that the beneficiary already has a taxable estate and by disclaiming the assets, their tax liability is reduced or eliminated. Another reason for disclaiming an inheritance may be to avoid losing one’s eligibility for public benefits. In estate planning for couples, a trust called a “disclaimer trust” uses the technique of disclaiming to specify that after the first spouse dies, the disclaimed property passes to a special trust designed to protect the property from estate taxes when the second spouse dies.

When someone disclaims property, the property passes as if that person were deceased. As an example, assume a situation where the beneficiary of a trust is a parent and the parent’s children are the alternate beneficiaries. The parent already has significant wealth so decides to disclaim the property. His children would then receive the property without a gift tax.

There are some specific requirements for a disclaimer. A disclaimer must be made within 9 months of the gift becoming effective which with a will or a trust is the date of death. Another limitation is that the person making the disclaimer must not have accepted the property or any of its benefits before making the disclaimer. For example a person could not accept a check from a life insurance policy, put it in their account, and then decide to disclaim it.

Disclaimers can be tricky. It is easy to forget about the 9 month period when going through the grieving process but disclaimers can be a valuable tool that should be taken advantage of by some individuals. To avoid missing the deadline or for advice on whether to do a disclaimer, an experienced estate planning lawyer should be consulted. We would be happy to help you with disclaimers or any other aspect of trust administration.