You might wonder why someone would turn down an inheritance, but it happens and often for good reason. Refusing to accept an inherited asset is known as disclaiming. An heir might disclaim an inheritance in several situations. Here’s how you can disclaim an inheritance if you need to.
Why would you disclaim an inheritance?
- An inheritance might push an individual with few assets over the qualification threshold for government benefits such as Medicaid. This can be true even if the inheritance is not of sufficient value to meaningfully improve the person’s finances.
- An inheritance might be of sufficient value to disqualify a family or individual from college financial aid eligibility.
- At the opposite end of the spectrum, individuals with estates valued just under the threshold for paying estate taxes ($12.06 million per person for 2022) might disclaim an inheritance that puts them over the exemption and into estate tax liability.
- A person may disclaim a property if accepting it creates relational conflicts or other complications with fellow heirs.
You need not state why you want to disclaim an inheritance. You just need to take a few steps to do it correctly. Estate laws can be complicated, so it’s important to get advice from an estate attorney.
As an example, suppose your widowed mother dies. In her will, she has left you a small, neglected house on a city lot. Your two siblings will inherit other parts of her estate. You do not want either the potential liability of owning the home or the cost associated with rehabilitating the property. You want to disclaim the inheritance and let your siblings take ownership.
A disclaimer of an inheritance is irrevocable, so before you disclaim property, carefully evaluate its value to you. In the above example, what if the inherited house sits in a neighborhood that’s still desirable? Could you demolish the house and build a new one on the lot?
If the person who wants to leave you property is still living and competent, you could potentially avoid a disclaimer by graciously asking them to revise their will to give the property to someone else.
Steps to take
If you decide to disclaim an inheritance, you must notify the executor of the estate, the court in the county where the deceased person lives, and the Internal Revenue Service (IRS) of your intent to disclaim. Do so in writing, and send the letters by certified mail within nine months of the death of the person willing the property to you. This is the period of time in which an estate tax return must be filed with the IRS and any estate taxes owed are to be paid.
Meanwhile, do not accept any benefits from the property. Using our example, if the house is being used as a rental, do not accept rent proceeds.
You will have no say as to whom the disclaimed property will go. It will pass to whomever the will specifies as backup heir, or to an individual the executor selects in conjunction with the probate court.
Related – What Does it Mean to Have Clear Title?
