7 Reasons Why Someone Might Not Accept an Inheritance

Surprise inheritances are the stuff dreams are made of in movies, novels, and country songs, but in reality, people frequently opt out of an inheritance for different reasons. If that sounds crazy, believe it or not, there are plenty of times the best way to use an inheritance is by not accepting it.

An inheritance disclaimer means that an individual chooses not to accept the benefit. Even though it is a gift, a person is not obligated to accept it. The asset then passes to someone else, as if the original intended recipient has predeceased the person willing it. This way, the recipient can sidestep most of the tax and financial repercussions of taking it.

Wondering what the reasons are as to why someone in New York might not accept an inheritance? Let’s take a closer look.

1. Gift and Estate Tax Savings

In most cases, gift and estate tax savings are cited as the primary incentive for using a qualified disclaimer to decline an inheritance. The unlimited marital deduction protects all transfers between spouses from gift and estate taxes. Additionally, transfers to non-spouse beneficiaries, such as a person’s children or grandchildren, may be covered by the gift and estate tax exemption.

2. To Avoid Receiving Undesirable Property

Sometimes an inheritance may include real estate or property that a beneficiary would have trouble selling or may not have the time or desire to deal with. For instance, an eroding beachfront home or land with outrageous real estate taxes may cause someone more of a headache or financial burden than they see fit.

3. To Benefit Another Family Member

Imagine someone – let’s call her Penelope – designated their child as the sole beneficiary of the assets in their retirement plan. When Penelope dies, her child – let’s say her son James – is in place to inherit the money. However, if James accepts the inheritance, he may no longer be eligible to receive any student financial aid at his university. So, James may decide not to claim the inheritance. Instead, the inheritance assets will go to whomever Penelope designated as a contingent beneficiary.

If an inheritance includes a vehicle, it could be deferred to go to a child, grandchild, or another family member who is of an age or financial standing where they are more in need of an inherited car than the original beneficiary.

4. Generation-Skipping Transfer Tax

Another popular reason New York estate planning lawyers hear from people who choose not to accept an inheritance is the Generation-Skipping (GST) Transfer Tax. The GST tax was introduced in 1976 to close a loophole.

Wealthy individuals had previously been able to gift money and property to their grandchildren without paying federal estate taxes. The GST Tax is a federal tax on an inheritance that averts individuals from avoiding estate taxes by skipping children in favor of grandchildren. Essentially under the GST Tax, grandchildren receive the same amount as if the inheritance were being gifted by their parents.

Someone who is worried about GST tax liability may opt to disclaim an inheritance. For example, if an individual in this situation disclaims a parent’s assets, the parent’s exemption can protect the transfer from a GST tax when the inheritance goes directly to the deceased’s grandchildren instead.

5. Avoiding Creditors

An inheritance received is promptly subject to creditors’ claims. By disclaiming an inheritance, a beneficiary can avoid losing property to creditors while keeping the inheritance within the family.

The bulk of disclaimer statutes say the disclaimer will date back to the precise time the interest in the inheritance vested. This means it is treated as if the disclaimant never had rights to the disclaimed property, so creditors attempting to collect debts owed by the disclaimant cannot seize the property or attach liens. Instead, the property will pass to the next heir.

However, disclaiming an inheritance does not completely protect one from creditors, as there are some specific legal exceptions prohibiting individuals from taking this route. For instance, an individual may not disclaim to avoid previously existing state or federal tax bills. New York state laws may hinder your goals to use a disclaimer to protect assets. Consult with an estate attorney regarding your specific circumstances.

6. Charitable Deductions

Sometimes a charitable contribution may be organized to provide a life estate while giving the remainder to a charitable organization of one’s preference.

An estate will not qualify for a charitable deduction without the benefit of a charitable remainder trust; however, using a qualified disclaimer may provide a deduction as the assets will be headed directly to the charitable organization.

7. Family Businesses

To pass a family-owned business to the younger generations, a qualified disclaimer may be used. Doing so may enable an individual to position stock ownership to the greater benefit of the family.

Contact Our Estate Attorneys and Estate Planning Lawyers for Guidance

If you’re faced with the decision of whether to accept an inheritance or use a qualified disclaimer, reach out to Levin Law Group in New York and New Jersey for guidance.

After the death of the person who has listed you as a beneficiary, you have nine months to decide whether to disclaim the inheritance. Understanding the permanency of your decision is important, as once you disclaim the assets, you cannot change your mind later.

Our trusted estate planning attorneys at Levin Law Group will help you understand the details of disclaiming an inheritance. If you would like more information or have questions related to disclaiming an inheritance, call Levin Law Group at (800)517-5240 or contact us online for a free consultation.