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How to Inform Beneficiaries of the Right to Disclaim

Beneficiaries may elect to disclaim, or refuse, an interest in the decedent’s estate that they don’t want to accept. Often beneficiaries exercise their right to disclaim for tax reasons. With some disclaimers, the generation-skipping transfer (GST) tax applies and the estate executor must be sure to file Form 706 appropriately. The estate executor must also be sure to properly follow the laws for pretermitted heirs.

As the estate’s executor, it’s your responsibility to inform the beneficiaries of the option to disclaim any or all of their legacies. If you have a feel for any or all of the beneficiaries’ financial situations, you’ll know whom to approach with this information — that would be the beneficiaries who already may have taxable estates for federal estate tax purposes.

When a beneficiary disclaims an interest, it is refused before receipt. For inheritance purposes, a disclaiming beneficiary is treated as though he or she predeceased the decedent. The disclaimed assets then pass to whoever is next in line to receive them. If you don’t know the beneficiaries’ financial situations, you can present this option to each appropriate beneficiary as a possibility.

Consult your state’s law for specifics, but generally speaking, to make an effective disclaimer the disclaimant must

  • Refuse the property, in writing, within a reasonable time after becoming aware of it. Check state statutes, but reasonable time is often nine months, which is the same as the deadline to file Form 706 without extensions.

  • Accept no benefits from the property.

  • Have no control over who receives the disclaimed property.

Disclaimers can be helpful in correcting overfunding or underfunding of marital deductions, or simply in not growing the disclaimant’s taxable estate unnecessarily if he or she is content with the new recipients of the disclaimed property.

For instance, if a beneficiary’s descendants may inherit the beneficiary’s share if he or she predeceases your decedent, an effective disclaimer will pass the assets to that next generation at no estate or inheritance tax cost to the disclaimant. The estate will have a transfer subject to generation-skipping transfer (GST) tax. The executor must keep this in mind in preparing the United States Estate (and Generation-Skipping Transfer) Tax Return (Form 706).

A child or issue of a deceased child who isn’t provided for in the decedent’s will, known as a pretermitted heir, is entitled to the share he or she would have received had the decedent died without a will (intestate). However, the pretermitted heir isn’t entitled to anything if the decedent has

  • Provided for that child or issue during life, or

  • Made it clear, usually in the will, that the omission was intentional.

Check the fine points of your state law if this situation arises.

Testators who really want to disinherit an heir will likely have included a specific clause in their last wills. This clause may either say that no provision has been made for that beneficiary under the will because he or she was provided for during lifetime or may leave that beneficiary some token amount, like $1 or $100.

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