When a loved one passes away, it is not uncommon for surviving heirs to battle over who will inherit the estate left behind. Sometimes, court battles over a decedent’s estate can take years to resolve, often depleting the estate of the very assets the heirs are fighting over. While disputes over who will inherit a decedent’s estate are relatively commonplace, the opposite problem can also occur during the probate of an estate. Sometimes, an heir or beneficiary does not want an inheritance. With that in mind, the Los Angeles attorneys at Schomer Estate & Wealth Advisors discuss what to do if you do not want to accept an inheritance.
Reasons to Turn Down an Inheritance
For most people, finding out that they are entitled to an inheritance left to them by a recently deceased loved one is welcome news. Occasionally, however, notice of an inheritance is not welcome news. While it may initially sound unbelievable that someone would turn down an inheritance, it actually happens more often than most people realize. In fact, there are several common reasons why people turn down (“disclaim” in legal terms) an inheritance, including:
- Accepting the inheritance would jeopardize assistance. For individuals relying on government assistance programs such as Medicaid, Veterans Aid and Attendance, or Supplemental Security Income (SSI), a lump sum inheritance could jeopardize eligibility. Unless the inheritance is substantial, the potential loss of benefits may outweigh its value, causing the beneficiary or heir to turn down the inheritance.
- Tax considerations. While all estates are subject to federal gift and estate taxes, some states also impose estate and/or inheritance taxes. Estate taxes are settled by the estate before distributing assets, while inheritance taxes are paid by recipients after receiving the assets. Opting to disclaim an inheritance, especially if the intended recipient (like a child) is in a lower tax bracket, can be a strategic move to mitigate future tax burdens.
- The beneficiary/heir has financial problems. Although it can be the solution to financial problems, an inheritance can also create more problems. If a beneficiary/heir is burdened by substantial debts, accepting an inheritance might mean losing that inheritance to creditors, making rejecting the inheritance the sensible choice. Be aware, however, that disclaiming an inheritance before or during bankruptcy proceedings can pose legal complications.
- The property will cost more than it is worth. Inheriting real estate that demands exorbitant repair costs or improvements may outweigh its potential benefits. Similarly, if the property is contaminated or unsuitable for construction in the near future, it might be more of a hassle than it’s worth.
- Ethical considerations prevent you from accepting the gift. Sometimes, the decision to disclaim an inheritance is guided by moral principles. If the decedent failed to update their estate plan to include a new spouse or child, choosing to disclaim the inheritance may be a matter of doing what is ethically right and ensuring the assets go to the rightful recipient.
How Do I Legally Turn Down an Inheritance?
If you decide that you do not want to accept an inheritance, for any reason, you may need to do more than simply tell someone you do not want it. The law requires you to execute a written disclaimer to officially turn down the inheritance. Before doing so, be sure to consult with an experienced estate planning attorney to be sure that you understand:
- Legal requirements. A valid disclaimer must meet specific requirements, including being in writing, containing the correct language, and being delivered to the appropriate person within a designated time frame.
- Outcome of rejection. You need to be certain about who will inherit the assets if you disclaim your share.
- Procedures. Certain actions you take might prevent you from disclaiming your inheritance successfully.
- All or nothing. The disclaimer must encompass the entirety of your inheritance.
- Irrevocable. A disclaimer is irrevocable. Once you’ve disclaimed your inheritance, you cannot alter the course of what happens next.
Are You Unsure About Whether to Accept an Inheritance?
For more information, please join us for an upcoming FREE seminar. If you have questions about your options as the beneficiary or heir to an estate, contact the experienced Los Angeles estate planning attorneys at Schomer Estate & Wealth Advisors by calling (310) 337-7696 to schedule an appointment.
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