How to Relinquish an Inheritance as a Beneficiary

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Inheritances aren’t always heaven sent. You might find yourself uncomfortable with receiving one for any number of reasons. Maybe someone else needs the gift more than you do. Accepting it might create tax problems. Whatever your reason, you’re not stuck with it. You can decline it -- called disclaiming or renouncing it in legalese.

Disclaiming an Inheritance

Your disclaimer must be in writing so there’s a legal record of it. You should include the name of the decedent, describe in detail what it is that you’re relinquishing and clearly state that you’re declining the gift. It might help to have an attorney look it over to make sure it accurately expresses your intent and conforms with any rules that are unique to your state. You would then submit the statement to the executor of the estate or, if the gift is held in trust for you, the trustee. You usually can’t decline just a portion of a bequest. If your favorite aunt leaves you $100,000, you can’t renounce $50,000 and keep the balance. This can vary by state, however, so check with a local lawyer.

Timing is Important

You must deliver your disclaimer to the proper person within a limited period of time, usually nine months. The clock begins ticking from the date of death but if you don’t find out about the inheritance until some time later, you may have longer, so check with an attorney. In some states, you’re not allowed to accept the gift then change your mind. If you spend even $10 of your aunt’s $100,000 bequest, you may be stuck with all the money. In the case of tangible property, you usually can’t benefit from it in any way then give it back. If your aunt leaves you her home, you typically can’t live there for a month, decide you don’t want to go to the expense of repairing the leaky roof, then return the house to her estate. Nor can you accept it, rent it out for a period of time and earn money from it, then change your mind.

What Happens to the Gift

When you disclaim an inheritance, the law and Internal Revenue Service treat the situation as though you never came into possession of the money or property. It stays in the deceased’s estate and passes to another beneficiary according to the terms of the will, just as if you had died before the decedent. You can’t decide which other beneficiary receives the inheritance you don’t want. Your sister might be struggling financially and you’d love to see her have the money, but the only way you can give it to her -- assuming she wouldn’t receive it according to the terms of the will if you step aside -- is to accept the gift then turn it over to her.

There’s No Turning Back

Disclaiming an inheritance is forever. Before you commit your decision to writing, give some thought to what you hope to achieve and get expert advice to determine whether your concerns are valid. You might fear that receiving $100,000 would put you in a higher tax bracket, but this isn't the case -- you don't pay income tax on most inherited property. Your tax return typically won't feel the impact of the gift unless you realize capital gains or losses or earn income from the inheritance, such as the returns you might realize if you invested that $100,000 rather than spent it.

References

About the Author

Beverly Bird is a practicing paralegal who has been writing professionally on legal subjects for over 30 years. She specializes in family law and estate law and has mediated family custody issues.

Photo Credits

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