Can a Beneficiary Decline an Inheritance?

Can a Beneficiary Decline an Inheritance?

Posted by on Apr 1, 2022


For many, receiving an inheritance is a life-changing financial windfall that provides the ability to pay off debt, upgrade into a larger home, invest in new business opportunities, or put money into your child’s college fund.

Inheriting money can also bring about additional responsibilities; however – beneficiaries will have to be vigilant that they use their new funds wisely and don’t spend too much on unnecessary or lavish purchases. And in certain situations, the beneficiaries of inheritances may want to decline receipt of inheritance money and physical assets altogether.

In this article we’ll look at whether or not a beneficiary can legally decline an inheritance, and if so, the steps you need to take to legally refuse becoming the beneficiary of a decedent’s will or trust.

Disclaiming an Inheritance 

Disclaiming is the legal term for declining an inheritance. It’s the process of refusing the physical or monetary assets you were set to receive as the named beneficiary of a will or trust inheritance. You also can decline funds held within a 401(k) retirement account, as well as the payout of a life insurance policy.

If you disclaim an inheritance, you forfeit your right to receive the assets that were designated to you by the decedent. When you do so, those assets are passed to the next named beneficiary of the inheritance, or they revert back to the decedent’s estate to be settled by the courts in the event of an intestate death (a death without a will). As far as the disclaimed beneficiary is concerned, those assets become “void ab initio,” meaning they have no legal effect from the start.

While not very common, disclaiming an inheritance does happen. Here are some reasons why people may choose to disclaim inheritances:

  • Financial implications of the federal estate tax
  • Declining aged or dilapidated real estate that would require extensive capital to repair or bring up to code
  • Avoiding a situation where creditors could access the funds to settle debts
  • Targeting a subsequent beneficiary who would be in a lower tax bracket
  • Passing the funds along to a more needy family member

How To Disclaim an Inheritance 

The Internal Revenue Service defines a qualified disclaimer as the irrevocable refusal from a beneficiary to accept an inheritance. The disclaimer must be made in writing within nine months of the decedent’s passing, unless the beneficiary is a minor; then, the disclaimer can be made when the minor turns 18 (age 21 in Mississippi).

If a beneficiary does plan on disclaiming, he or she can’t have taken receipt of any proceeds or assets, either directly or indirectly. The disclaimed assets will be transferred to a secondary beneficiary. It’s also important to note that disclaiming an inheritance is irrevocable – you can’t walk it back if you find yourself in financial straits at some point in the future.

The Bottom Line

Providing written notification to the administrator or custodian of an estate or trust is typically all you need to do to disclaim an inheritance. You may wish to learn a bit more about what will happen to any disclaimed assets prior to making your decision final, however – you might not want the decedent’s financial legacy to pass along to someone outside of your nuclear family, or to someone who has a history of being financially irresponsible, for instance.

It’s always a prudent idea to discuss complex legal and financial matters such as this with the appropriate legal and tax professionals to ensure you make informed decisions.

This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Realized does not provide tax or legal advice. This material is not a substitute for seeking the advice of a qualified professional for your individual situation.

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