When you receive an inheritance or gift, this doesn’t necessarily you must or even should accept it.
As an heir or beneficiary, you have the option of legally disclaiming all or part of your inheritance if you believe it will cause more complications than it will help.
While it may seem ungrateful or unwise, there are many reasons why disclaiming an inheritance could be a smart idea. We’ve listed some of the most common reasons to disclaim an inheritance below.
Estate tax purposes. If your estate is large enough, inheriting could end up bringing additional taxes on your estate when you die. If you disclaim your inheritance, you may be able to pass the inheritance on to another beneficiary in a lower income tax bracket who will not have this problem. By doing so, you can avoid the federal taxes the inheritance could tack onto your estate.
Bankruptcy and debt concerns. If the deceased person’s estate comes with claims from creditors, inheritance may be more trouble than it is worth. Alternatively, if you have many debts, you may want to disclaim your inheritance to keep it from being torn apart by creditor claims to pay off your debt.
Avoiding unwanted property. You may want to disclaim inherited real property if it is undesirable, far away, or subject to high real estate taxes.
Gift tax exemption. If your spouse dies before using his or her lifetime gift tax exemption, it might be a smart strategy to disclaim all or a portion of his or her estate after your spouse’s death. This way, the amount you disclaim will pass to the next generation tax free.
For another’s benefit. You may decide to disclaim an inheritance for the benefit of another loved one. For instance, you could disclaim an inherited property so it falls to a relative who would appreciate it.
Disclaiming an Inheritance in 3 Steps
These are only a sampling of the many reasons you may want to disclaim an inheritance or gift. To do so, you must draft a proper renunciation or disclaimer document that complies with both Florida and IRS laws.
Below, we’ve outlined the three basic steps to disclaiming an inheritance in Florida. Before beginning, bear in mind that you must not accept any benefit from the property you are trying to disclaim before or during the process of filing a disclaimer.
Step One: Write the Disclaimer
The first step is to draw up a valid disclaimer in writing. Under the Florida Uniform Disclaimer of Property Interests Act, a valid disclaimer must meet the following criteria:
- Be in writing
- Declare that it is a disclaimer
- Be signed by you, the individual filing the disclaimer
- Be witness and acknowledged by the manner required for deeds of real estate to be recorded in Florida
Step Two: Sign the Disclaimer
You should sign your disclaimer before a notary public and have the document notarized.
Step Three: File the Disclaimer
File the disclaimer with the executor, trustee, or other individual in control of estate administration. It’s important to file your disclaimer promptly, since there are deadlines for which a valid disclaimer may be filed. IRS laws require you to file a disclaimer within nine months of the decedent’s death. If you do not file a disclaimer within the established deadline, disclaiming will no longer be an option and the inherited property will become yours.
Once the document has been filed and approved, your inheritance will pass to the next heir or beneficiary in line to receive it, as outlined by the will or according to Florida intestate succession laws. Keep in mind that a disclaimer, once in effect, is irrevocable. That means you will not be able to change your mind once the disclaimer has been filed successfully—essentially, it will be as though you never received any inheritance in the first place.
If you are considering disclaiming an inheritance, you should speak to a knowledgeable Florida estate planning attorney. An experienced attorney can help you determine whether disclaiming the property is the right strategy in your unique situation. This is particularly important if your goal is to reduce or avoid estate taxes. When drafted properly, a valid disclaimer document could save you hundreds of thousands in taxes, so seeking professional guidance is critical if you want to avoid errors and complications.
If you do decide to move forward with your disclaimer, your estate planning lawyer can help you draft a proper document that complies with Florida and federal laws, and file it in a timely manner.
About the Author:
Christopher Q. Wintter is the founder of Wintter & Associates, P.A. and a board-certified expert in Trust and Estate matters by the Florida Bar. With more than 24 years’ experience as a practicing attorney, he also serves as an instructor and faculty member for the National Institute of Trial Advocacy (NITA)—the nation’s leading provider of legal advocacy skills training to practicing attorneys—and has earned the AV® Preeminent™ rating with LexisNexis Martindale Hubbell. He was also selected for inclusion in Florida Super Lawyers for 2011 and 2012 in Estate and Trust Litigation.