Disclaiming an inheritance

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grandmacassie
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Disclaiming an inheritance

Post by grandmacassie »

Hello, ye wise ones!

Here's the situation. Dear MIL passed away with financial assets/securities valued at about 500K. Both her sons, named as heirs in her will, are financially secure and do not need any inheritance. One son has no children, the other has two children. Brothers have agreed to both disclaim in favor of the one brother's sons.

So, what are the mechanics of this? Does the childless brother disclaim in favor of the brother with children, who then disclaims both shares in favor of his sons? Can the childless brother disclaim directly to his nephews? Does disclaiming trigger reporting of a gift to the IRS by the disclaimers? If it matters, the state is PA. I know there may be a state inheritance tax due, regardless of who the inheritors are. My question is whether the IRS considers a disclaimed inheritance to be a gift that counts toward the federal estate tax exemption of the person who disclaims.

Thanks in advance for your help!
Soon2BXProgrammer
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Re: Disclaiming an inheritance

Post by Soon2BXProgrammer »

grandmacassie wrote: Thu Nov 19, 2020 2:18 pm Hello, ye wise ones!

Here's the situation. Dear MIL passed away with financial assets/securities valued at about 500K. Both her sons, named as heirs in her will, are financially secure and do not need any inheritance. One son has no children, the other has two children. Brothers have agreed to both disclaim in favor of the one brother's sons.

So, what are the mechanics of this? Does the childless brother disclaim in favor of the brother with children, who then disclaims both shares in favor of his sons? Can the childless brother disclaim directly to his nephews? Does disclaiming trigger reporting of a gift to the IRS by the disclaimers? If it matters, the state is PA. I know there may be a state inheritance tax due, regardless of who the inheritors are. My question is whether the IRS considers a disclaimed inheritance to be a gift that counts toward the federal estate tax exemption of the person who disclaims.

Thanks in advance for your help!

You need to talk with a lawyer that is knowledgeable about your state law.

Normally, things are pretty simple if there is an IRA with a primary and contingent beneficiary. If the primary disclaims it goes to the contingent.

This is not the situation you are describing. I don't know where the probate court will say the money should go.

In general, if someone disclaims, and it goes to someone else, that isn't a gift from the disclaimer. If they don't disclaim and they recieve it, and then gift it, it is a gift obviously.
123
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Re: Disclaiming an inheritance

Post by 123 »

Google whispered in my ear that Pennsylvania treats a disclaimed inheritance as if the disclaimer died before the primary, so the terms of the will or Pennsylvania law will direct where the disclaimed inheritance goes.Google cautions that it must be done within 9 months of the date of death and clearly documented. Best to confirm how it all works with a Pennsylvania estate attorney.
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mhalley
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Re: Disclaiming an inheritance

Post by mhalley »

IANAL. A quick google search does not reveal a method to disclaim and have it go to a particular person. Second the get a lawyer rec.
Soon2BXProgrammer
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Re: Disclaiming an inheritance

Post by Soon2BXProgrammer »

mhalley wrote: Thu Nov 19, 2020 2:29 pm IANAL. A quick google search does not reveal a method to disclaim and have it go to a particular person. T
you can not specify who the money goes to when you disclaim. If the disclaimer influences the process of who it goes to.. then this is not disclaiming the inheritance. (effectively it will be treated as receiving the money and then a gift)

It must go to the next person as listed in the will (or beneficiary documentations) or by state law.

This gets complicated because if the person has "give the money to my sons" if they are not alive, give it to XYZ charity. Then if the children disclaim, it goes to the charity.
Last edited by Soon2BXProgrammer on Thu Nov 19, 2020 2:37 pm, edited 2 times in total.
howard71
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Re: Disclaiming an inheritance

Post by howard71 »

My mother died last year and both my brother and I disclaimed the inheritance in favor of my sister. I had originally planned to do this by gifting the money to my sister but when my brother looked into it, all we had to do was sign some papers to release the accounts to my sister. It was all cash so there was no IRA involved. That was in Ohio. I assume it would be the same in all states as far as the IRS goes. Don't know about state law in PA but there was nothing stopping us in Ohio.
Longdog
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Re: Disclaiming an inheritance

Post by Longdog »

I don't think that "disclaiming" allows you to designate an alternate beneficiary. If there is no contingent beneficiary for the portion disclaimed, then I think that portion disclaimed goes into the estate and is treated in accordance with the state's laws of intestate, because that portion would then have no designated beneficiary.

Another option is for the two brothers to accept the inheritance, then gift it all to the sons and file gift tax returns. Or to accept the inheritance and gift it over several years, keeping below the threshold for filing gift tax returns. Or, to accept the inheritances and create a trust.

IANAL and I'm sure I'll be corrected if anything I said is incorrect.
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beernutz
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Re: Disclaiming an inheritance

Post by beernutz »

My uncle died in 2005 and his primary beneficiary was my mother. She disclaimed the inheritance and it was divided equally between her children who were named as contingent beneficiaries.
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Lee_WSP
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Re: Disclaiming an inheritance

Post by Lee_WSP »

Disclaiming has a similar effect to predeceasing the deceased. Except that you're actually alive :wink: :beer
MikeG62
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Re: Disclaiming an inheritance

Post by MikeG62 »

Longdog wrote: Thu Nov 19, 2020 2:33 pm I don't think that "disclaiming" allows you to designate an alternate beneficiary. If there is no contingent beneficiary for the portion disclaimed, then I think that portion disclaimed goes into the estate and is treated in accordance with the state's laws of intestate, because that portion would then have no designated beneficiary.
IANAL either, but I would expect the Mom's will to address what happens if one of her sons were to predecease her. So I'd look there first. Assuming it's like our wills, it may indicate that if the son(s) predeceases the Mom, the inheritance will go the decedents of the son(s). If that is the case, then both sons disclaiming should result in the inheritance going directly to the children of the one son.

Now, if BSteiner chimes in you can forget all this and follow what he says. He is an expert in this area.
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JoeRetire
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Re: Disclaiming an inheritance

Post by JoeRetire »

grandmacassie wrote: Thu Nov 19, 2020 2:18 pm Hello, ye wise ones!

Here's the situation. Dear MIL passed away with financial assets/securities valued at about 500K. Both her sons, named as heirs in her will, are financially secure and do not need any inheritance. One son has no children, the other has two children. Brothers have agreed to both disclaim in favor of the one brother's sons.
Disclaiming doesn't mean you get to turn over your share to whoever you choose.

Talk to the estate lawyer to see how to get the assets to the children most effectively. It likely depends on the terms of the will.
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8foot7
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Re: Disclaiming an inheritance

Post by 8foot7 »

Disclaiming and redirecting your share are two different things. If you disclaim you have no say over what happens to your inheritance because it's like you never had it to begin with.
Gnirk
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Re: Disclaiming an inheritance

Post by Gnirk »

I all depends upon how her will is written. In our state, if the will is written so that the one brother's children are the only secondary beneficiaries to the estate, then yes the brothers can both disclaim it to the older brother's children. It all depends upon who or what are the secondary beneficiaries.

I disclaimed a portion of my inheritance from my mother to my two daughters. Mom's will was written such that in case I predeceased my mom, my share would be equally divided per stirpes with my daughters. I simply wote up a simple note disclaiming X amount of my inheritance to each of my two daughters and gave it to the attorney who was helping me with the estate so that it was on record with the court.

It is considered an inheritance, not a gift if it is disclaimed.
Topic Author
grandmacassie
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Re: Disclaiming an inheritance

Post by grandmacassie »

Thanks for the replies. Of course there is an estate atty on the matter, so his advice will be followed. Its just that lawyers are always so slow and deliberate....as you want them to be, of course, but dang, it can be frustrating!
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Matahari
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Re: Disclaiming an inheritance

Post by Matahari »

grandmacassie wrote: Thu Nov 19, 2020 2:18 pm Hello, ye wise ones!

Here's the situation. Dear MIL passed away with financial assets/securities valued at about 500K. Both her sons, named as heirs in her will, are financially secure and do not need any inheritance. One son has no children, the other has two children. Brothers have agreed to both disclaim in favor of the one brother's sons.

So, what are the mechanics of this? Does the childless brother disclaim in favor of the brother with children, who then disclaims both shares in favor of his sons? Can the childless brother disclaim directly to his nephews? Does disclaiming trigger reporting of a gift to the IRS by the disclaimers? If it matters, the state is PA. I know there may be a state inheritance tax due, regardless of who the inheritors are. My question is whether the IRS considers a disclaimed inheritance to be a gift that counts toward the federal estate tax exemption of the person who disclaims.

Thanks in advance for your help!
You should follow the estate lawyer's advice on the procedure to disclaim and regarding tax consequences, if any.
However, you should be aware that there is typically a time limit (measured in several months following the date of death) for any beneficiary to disclaim.

In my ILs' situation, both my husband and his brother (the only siblings) disclaimed in favor of the grandchildren. The estate lawyer prepared disclaimer documents and both sons executed disclaimers at the same time.
MikeG62
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Re: Disclaiming an inheritance

Post by MikeG62 »

grandmacassie wrote: Thu Nov 19, 2020 3:42 pm Thanks for the replies. Of course there is an estate atty on the matter, so his advice will be followed. Its just that lawyers are always so slow and deliberate....as you want them to be, of course, but dang, it can be frustrating!
As I asked upthread, what does the will say in the event one or both of the son's were to predecease their mother?
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Topic Author
grandmacassie
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Re: Disclaiming an inheritance

Post by grandmacassie »

The will says heirs are the sons per stripes. If testator had died without any direct descendants, several charities are listed.
aristotelian
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Re: Disclaiming an inheritance

Post by aristotelian »

Longdog wrote: Thu Nov 19, 2020 2:33 pm I don't think that "disclaiming" allows you to designate an alternate beneficiary. If there is no contingent beneficiary for the portion disclaimed, then I think that portion disclaimed goes into the estate and is treated in accordance with the state's laws of intestate, because that portion would then have no designated beneficiary.

That sounds correct. If the children are minors, a parent would need to be named Guardian and report to the court. Even if the kids are next in line the family is going to need a lawyer.
the way
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Re: Disclaiming an inheritance

Post by the way »

grandmacassie wrote: Fri Nov 20, 2020 3:24 pm The will says heirs are the sons per stripes. If testator had died without any direct descendants, several charities are listed.
[caveat: I probably don't know what I'm talking about!]
Then it sounds like only 1 son needs to disclaim, the one with kids. The other can only inherit and choose to gift to his nephews. If he disclaims, it'll go to the charities.
Last edited by the way on Fri Nov 20, 2020 8:26 pm, edited 1 time in total.
Lee_WSP
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Re: Disclaiming an inheritance

Post by Lee_WSP »

the way wrote: Fri Nov 20, 2020 3:41 pm
grandmacassie wrote: Fri Nov 20, 2020 3:24 pm The will says heirs are the sons per stripes. If testator had died without any direct descendants, several charities are listed.
Then it sounds like only 1 son needs to disclaim, the one with kids. The other can only inherit and choose to gift to his nephews. If he disclaims, it'll go to the charities.
Per stirpes - Latin for "by roots," by representation. The term is commonly used in wills and trusts to describe the distribution when a beneficiary dies before the person whose estate is being divided. Example: "I leave $100,000 to my daughter, Eleanor, and if she shall predecease me, to her children, per stirpes." Thus, if Eleanor dies before her parent, then the $100,000 will be divided among her children equally. A way to make this more clear is to substitute for per stirpes: "…to her children, by right of representation, share and share alike," which is clear to the non-lawyer. If there is no provision for distribution to children of a predeceased child, then the gift will become part of the residue (what is left after specific gifts), and then the grandchildren may not share if there are surviving children of the giver.
https://dictionary.law.com/Default.aspx?selected=1522
https://legal-dictionary.thefreediction ... er+stirpes

Given a hypothetical where there are two descendants of decedant and only one has children. If both disclaim, then it will pass per stirpes to the descendants of the two. Since one has no descendants, the share passes back up and then to the siblings children.

If in the same hypothetical where only the sibling with children disclaim, half the inheritance goes to disclaimer's children, half would go to sibling who would then need to gift the proceeds to the intended beneficiaries using up some of the sibling's lifetime exemption.
Last edited by Lee_WSP on Fri Nov 20, 2020 6:08 pm, edited 3 times in total.
the way
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Re: Disclaiming an inheritance

Post by the way »

Lee_WSP wrote: Fri Nov 20, 2020 3:47 pm Given a hypothetical where there are two descendants of decedant and only one has children. If both disclaim, then it will pass per stirpes to the descendants of the two. Since one has no descendants, the share passes back up and then to the siblings children.

If in the same hypothetical where only the sibling with children disclaim, what would happen is that the entire inheritance would then go to other sibling (without the children) who would then need to gift the proceeds to the intended beneficiaries using up some of the sibling's lifetime exemption.
I think you may be right, at least partially? https://smartasset.com/retirement/per-stirpes-defined

Example 3 seems to agree that if the son w/o children disclaims, then the other son gets it all. And if that son disclaims too, then the nephews get it all.

But Example 2 disagrees with you, in that if only the son with children disclaims, then his children do get his share, while the brother still only gets 1/2.

(However, it seems like the exact wording of the will is very important, so OP should rely on the lawyer as you said)
Lee_WSP
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Re: Disclaiming an inheritance

Post by Lee_WSP »

the way wrote: Fri Nov 20, 2020 4:40 pm if only the son with children disclaims, then his children do get his share, while the brother still only gets 1/2.
That's what I meant to type (fixed it). Stirpes splits it at the first level, then each branch splits it at each level so forth and so forth.
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Re: Disclaiming an inheritance

Post by bsteiner »

Lee_WSP wrote: Fri Nov 20, 2020 3:47 pm ...
Per stirpes - Latin for "by roots," by representation. The term is commonly used in wills and trusts to describe the distribution when a beneficiary dies before the person whose estate is being divided. Example: "I leave $100,000 to my daughter, Eleanor, and if she shall predecease me, to her children, per stirpes." Thus, if Eleanor dies before her parent, then the $100,000 will be divided among her children equally. A way to make this more clear is to substitute for per stirpes: "…to her children, by right of representation, share and share alike," which is clear to the non-lawyer. If there is no provision for distribution to children of a predeceased child, then the gift will become part of the residue (what is left after specific gifts), and then the grandchildren may not share if there are surviving children of the giver.
...
Per stirpes, by representation, and share and share alike (per capita).

Per capita means an equal share to everyone in the class who survives, with nothing going to the issue of a class member who predeceases. For example, I leave 10% of my estate to my nieces and nephews, per capita. If a niece or nephew predeceases me, his/her issue get nothing.

Suppose you have 3 children, A, B and C. A survives you. B predeceases you leaving two children, B1 and B2. C predeceases you leaving 3 children, C1, C2 and C3.

If you leave your estate to your issue per stirpes, A gets 1/3, B1 and B2 divide B's share, and C1, C2 and C3 divide C's share. B1 and B2 each get 1/6, so collectively they get 1/3, which would have been B's share. C1, C2 and C3 each get 1/9, so collectively they get 1/3 which would have been C's share. Most people do it this way, since the order of deaths won't change the result. In other words, the result is the same as if B and C had survived, received their shares, and left their shares to their children.

In the above example, if you leave your estate to your issue by representation, A gets 1/3. However, B's and C's shares are pooled, and divided equally among their children. B1, B2, C1, C2 and C3 each get 2/15. In recent years, many if not most states have changed their default laws and intestate laws to provide for this unless you specify otherwise in your Will. Some people prefer this on the theory that if B and C are no longer alive, it no longer matters which grandchild is in which branch.

The New York default law and intestate law used to be per stirpes if at least one child was living, but per capita (an equal share to each grandchild) if no child was living. One of my mentors preferred that approach. He thought that most people would want per stirpes if at least one child was living, but per capita if no child was living.

Fortunately we've rarely had any cases where two children predeceased a parent leaving different numbers of children and where the parent didn't specify what he/she wanted.

In this case, if the decedent left her estate to her issue, per stirpes, and both children disclaim, the estate will go to the surviving grandchildren.

If you disclaim, you can't say where the disclaimed property goes. Unless the testator provided otherwise (such as a disclaimer trust as backup), if you disclaim, the disclaimed property passes as if you predeceased the testator.

A qualified disclaimer (one that' not a taxable gift) must be made, if at all, within 9 months of death (or of the gift) (or within 9 months from when the person disclaiming reaches age 21, if later).

The requirements for disclaimers, and for filing and serving them, vary from state to state, so a lawyer familiar with the requirements in the applicable state should prepare the disclaimer and file and serve it if necessary.
Lee_WSP
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Re: Disclaiming an inheritance

Post by Lee_WSP »

bsteiner wrote: Fri Nov 20, 2020 5:48 pm
The New York default law and intestate law used to be per stirpes if at least one child was living, but per capita (an equal share to each grandchild) if no child was living. One of my mentors preferred that approach. He thought that most people would want per stirpes if at least one child was living, but per capita if no child was living.
Arizona's is per capita by generation (right of representation). I believe it achieves a similar result with the biggest difference being the per capita distribution at the grandchild/great grandchild level if at least one and less than all of the children predeceased; rather than per stirpes.

I personally like the approach. I like to think grandparents like to think of their grandchildren as an equal group as opposed to branches of offspring. That said, I'm sure some people prefer the stirpes method.
A. If under section 14-2103, paragraph 1 all or part of a decedent's intestate estate passes by representation to the decedent's descendants, that estate is divided into as many equal shares as there are surviving descendants in the generation nearest to the decedent that contains one or more surviving descendants and to deceased descendants in the same generation who left any surviving descendants. Each surviving descendant in the nearest generation is allocated one share. Any remaining shares are combined and then divided in the same manner among the surviving descendants of the deceased descendants as if the surviving descendants who were allocated a share and their surviving descendants had predeceased the decedent.
Katietsu
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Re: Disclaiming an inheritance

Post by Katietsu »

The person who googled and came up with the answer that PA treats disclaiming as if the person disclaiming had predeceased the decedent agrees with my experience.

The process to disclaim can be remarkably simple. Basically, just signing a simple short statement.
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