Exercising Disclaimers in Estate Plans: Meeting Section 2518 Requirements

Description

Simply put, a disclaimer is a refusal to accept a gift or bequest. A proper disclaimer results in the property being treated as if the transferee never received it.

There are many tax reasons a recipient may want to disclaim a bequest and, although the foremost consideration is usually tax savings, many of these go beyond tax. Traditional estate plans pass assets from the grandparents to parents, and then grandchildren. Using partial or full disclaimers allows the named beneficiary to skip a generation. This can allow the immediate distribution of some or all of an asset to grandchildren who may have a greater financial need. This, too, could result in overall transfer and income tax savings to the family as a whole.

Disclaiming an asset under Section 2518 gives the primary beneficiary nine months to consider post-mortem planning. However, improperly making the disclaimer can result in a nonqualified disclaimer. This results in the recipient receiving the asset. Any subsequent transfer would be deemed a gift and subject to gift tax or additional use of the donor's exemption. Most advisers recommend adding disclaimer language to related documents, including wills, beneficiary designations, and trusts.

Listen as our panelist illustrates common estate scenarios where disclaimers can save significant income and transfer tax, the steps necessary to make a qualified disclaimer, explain specific situations and the steps necessary to make a disclaimer, and how the new recipient is determined when an inheritance or gift is disclaimed.