Does It Make Sense to Reject an Inheritance?


































Episode 346 - Does it ever make sense to reject an inheritance? On some occasions, a “qualified disclaimer” can give you a chance to do the right thing, or to avoid a major headache.













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Transcript of Podcast Episode 346





Hello, this is Bill Rainaldi, with another edition of Security Mutual’s SML Planning Minute. In today’s episode, does it make sense to reject an inheritance?
So, your Uncle Joe died a few weeks ago, and to your surprise, he’s left some of his assets to you. Great news, yes? Well, most of the time, but not always. There are occasions when someone might choose to reject an inheritance through what’s known as a disclaimer.
Sure, it sounds crazy. Why on Earth would anybody decline to receive extra assets? Certainly, it’s something you’d rarely see for someone who truly needs the money. And while it’s done most often by wealthier people, anyone can use a disclaimer. It can be used as a tool to make last minute changes to an estate plan, even after someone has died. Here are a few specific circumstances where it might make sense:[1]

* The person who would inherit after you disclaim, such as a child, a sibling or a charity, might need the money more than you do.
* The inherited assets would increase the size of your estate, which could result in tax planning issues later on.
* You have special income tax considerations, such as trying to avoid Required Minimum Distributions for an inherited IRA, where you have to withdraw all assets from the plan within 10 years and doing so could move you into a higher tax bracket.
* You recognize that disclaiming the inheritance would better reflect the true intent of the deceased person.
* Receiving the inheritance might jeopardize your eligibility for federal programs, such as Supplemental Security Income (SSI) or Medicaid.
* You don’t need the money yourself and would prefer to see someone else benefit from it. But keep in mind that once you disclaim an asset, you cannot change your mind.  It is final and irrevocable.

There are other, potentially less altruistic reasons as well. Let’s say the deceased person leaves their home to you, which needs major repairs or has a potential environmental issue. In some of these cases, your best choice may be to disclaim.[2] Financial instability, divorce, and litigation are other reasons it could be problematic to inherit assets.[3]
Whatever the reason, if you wish to disclaim an asset you’re scheduled to receive, you need to make sure you fully understand the effect of your disclaimer and follow the applicable state and federal rules. You will likely need an attorney to help you file a “qualified disclaimer,” which is a written document that clearly states your refusal to accept the property. To be considered qualified for federal tax purposes,