Most people would take the news of an inheritance very well. Who wouldn’t welcome some unexpected money or property? Yet, there are some circumstances when an inheritance would not be the best news. If you find yourself in a situation where it would be best not to accept an inheritance, how would you do that? The reality is, you can reject an inheritance. However, it is a little more complicated than saying, “no thanks.” Your estate planning attorney can help you with your inheritance planning.
Tax consequences may be a reason to reject an inheritance
There are so many different reasons why someone might be inclined to reject an inheritance. The most common reason is that accepting the inheritance would cost the heir more than the actual inheritance is worth. This situation is most often a result of estate taxes. Although an inheritance from your spouse would not result in federal estate or gift taxes, when combined with your own assets, there may very well be tax consequences. Any amount of your assets over the gift tax exclusion will be taxed at 40%. In that situation, it may be better to disclaim the inheritance from your spouse, allowing it to pass directly to the next beneficiaries in line, which are most likely your children.
When an inheritance jeopardizes government benefits
Sometimes, a beneficiary may be dependent on state or federal programs such as SSI or Medi-Cal for assistance it may be necessary to disclaim an inheritance in order to avoid being disqualified from receiving much needed government assistance.
Assigning an inheritance to satisfy your loved one’s wishes
Another possible scenario is when you know that your loved one had other intentions, but never got around to drafting a will. For example, your mother passes away and has no other legal heirs than you, but you know she wanted her long-time companion to receive part of her estate. Because she did not have a will, you are the only legal beneficiary. But, you have the option of assigning some of your inheritance to your mother’s partner. Before doing so, you should discuss your options with an estate planning attorney to be sure that the assignment is done properly.
How to make a disclaimer in California
If you decide that the best option for you is to disclaim the inheritance, then there are a few steps you need to take in order to ensure that you never legally own the property. First, you must put your disclaimer in writing and deliver it to the person who is in control of the estate. That would typically be the executor or trustee. Do not accept any benefit from the property you intend to disclaim. The disclaimer must be completed within nine months of the death of the person from whom you have inherited.
What should the disclaimer say?
In addition to being in writing and signed by you, the disclaimer should include the following information:
- the identity of the creator of the interest
- a description of the interest to be disclaimed
- an explanation of the nature and extent of the disclaimer
Handling an inheritance
In some cases, you may want to assign a portion of the inheritance or disclaim only certain assets. If that is the case, it is important to know how to handle the remainder of the inheritance in a way that benefits you the most. You should decide whether to sell certain assets, such as stocks or mutual funds. You also need to decide what to do with retirement accounts. But, most importantly, you need to have a tax plan in place that will address any potential tax consequences that can arise from an inheritance.
Make the inheritance part of your overall estate plan
It is important to include the inheritance in your overall estate plan, which means looking beyond the sentimental value of certain assets you inherit. Regardless of sentimental value, you need to consider how a particular asset fits into your financial plans. Increasing your own financial risk by holding on to certain assets is not always a smart move. By waiting to move forward with your own plans and sell an asset you inherited, you will likely increase the possibility of unfavorable tax consequences – consequences that could be avoided if the asset is sold or properly incorporated into your own estate plan.
If you have questions regarding inheritance planning, or any other estate planning needs, please contact the Schomer Law Group for a consultation, either online or by calling us at (310) 337-7696.