Occasionally, a person may receive a gift under a will or a trust that they think would be more appropriate for their descendants. In these situations – and if the trust is drafted appropriately – the person usually has a legal right to say, “Thanks, but no thanks,” to the gift. At that point, the gift then “passes” to the person’s descendant(s) or beneficiary(ies). This means that the law will consider that initial recipient dead, i.e., having “predeceased” the testator, with respect to that particular gift and, as a result, the proposed recipient’s descendants take the gift.
Why would you disclaim a gift?
- You don’t need the gift but your descendants might. For example, if Grandpa passes away leaving his house to your father, but Dad has his own home and a retirement condo, Dad may decide that you – a young professional with student loans – may benefit from owning the home more than Dad. So, Dad says in a writing that appropriately describes the gift and is delivered to the appropriate party, “Thanks, but no thanks. I, Dad, am unequivocally and expressly refusing the house … bequeathed to me by my father …” Once Dad’s disclaimer is accepted, if you’re the only child, then you get the house. If you have siblings, then, generally, you will need to determine with your siblings how best to divide the interest in the house.
- You can’t afford the responsibility. If you and your partner are urbane empty-nesters, perfectly content with your 2-bedroom city dwelling, do you want the 4-bedroom home in the suburbs that Aunt Val left you with all the maintenance and tax bills that come with it? Probably not. However, your adopted daughter who now has newborn twins and a 3-year-old could probably use the extra space. So you say in writing, “Thanks but no thanks” to Aunt Val’s lush suburban family home.
- You want to avoid creditors. If you refuse a gift, a creditor claim cannot attach to your interest in the gift because under the law you never had any interest in the gift once your disclaimer is accepted. However, the area of the law using disclaimers as a way to avoid creditors is rapidly closing this loophole, so creditor claim avoidance probably isn’t the most prudent use of this testamentary mechanism.
Disclaimers, simple at first blush, are like most legal tools – devilish in the details. If you’re considering disclaiming a gift, below are a few points to discuss with your attorney:
- Whether or not the property will be completely yours if it is currently held in joint tenancy with you and 2 other tenants;
- The irrevocability of disclaiming;
- Your action to date regarding the interest in the property; and
- Tax implications, which should be considered sooner rather than later.
In the world of wills, trusts, and estate planning, the intent of the testator is a cardinal rule. Yet, sometimes the intent of the testator and the needs of the heirs conflict. Using a disclaimer may help resolve that conflict.