November 18, 2013   Inheritance

When You Should Refuse an Inheritance


Although seemingly counterintuitive, there are many reasons why a person may wish to disclaim a bequest he or she is set to receive under the terms of a loved one’s estate plan. Some of these reasons, detailed below, are completely overlooked by heirs who stand to gain from disclaiming.
 
If Your Beneficiary is in Debt
Inherited assets are generally not safe from a beneficiary’s creditors. Therefore, if a beneficiary is in debt, his or her inheritance may quickly vanish in order to satisfy his or her creditors. To avoid this fate, a beneficiary must step out of line, allowing the assets to pass to the contingent beneficiary.
 
As a Corrective Measure
Too often, people pass on with an outdated estate plan that does not convey their most recent wishes for the distribution of their estate. These estates are often distributed by the terms of the estate plan, without regard for the decedent’s actual – and sometimes well known – wishes. A beneficiary can set things right by disclaiming his or her inheritance and allowing it to pass to a more appropriate beneficiary.
 
To Avoid Taxes
Inheritances often give rise to gift tax liability. Beneficiaries who do not need the inheritance they are set to receive often choose to disclaim inheritance in order to pass the assets to the next generation. That way, any tax liability on the gift will be taxed in the lower tax bracket of the next generation family member.
 
If you are considering disclaiming your inheritance, it is important to discuss your intentions with a knowledgeable estate-planning attorney. Importantly, you cannot change your mind after disclaiming an inheritance.


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