Can You Refuse an Inheritance?

It’s a bit of a strange thought, but occasionally there are reasons for people not to want their inheritance.  They may have expected the money to go to someone else and want to facilitate that, they may feel they have enough money and want it to pass to someone else, or perhaps they are concerned about taxes.  Whatever, the reason, no one can be forced to accept an inheritance they don’t want. However, what happens to the inheritance after they reject, or “disclaim” the inheritance depends on a number of things, says the recent article “Estate Planning: Disclaimers” from NWI Times.

A disclaimer is a legal document used to disclaim the property. To be valid for at least most tax purposes, the disclaimer must be irrevocable, in writing and executed within nine months of the death of the decedent. You can’t have accepted any of the assets or received any of the benefits of the assets and then change your mind later on.  Basically, you can’t receive the assets, and then decide to give them back as though you didn’t want them in the first place.

Once you accept an inheritance, it’s yours. If you know you intend to disclaim the inheritance, have an estate planning attorney create the disclaimer to protect yourself.

If the disclaimer is valid and properly prepared, you simply won’t receive the inheritance. Instead, the property will go to whomever would have received had you predeceased the decedent.  That might be many individuals, so it is important to understand to whom the property will go if you disclaim.  It might be based upon the trust or will that named you originally, a beneficiary designation on a financial asset or the intestate laws of the state where the decedent lived.

Once you disclaim an inheritance, it’s permanent and you can’t ask for it to be given to you. If you fail to execute the disclaimer after the nine-month period, the disclaimed property might then be treated as a gift, not an inheritance, which could have an impact on your tax liability.

Persons with disabilities who receive means-tested government benefits should never accept an inheritance, since they can lose eligibility for benefits.  Now, some states will consider a disclaimer a transfer for government benefits, meaning you may lose the benefits anyway.  So, the best solution is to consult with a lawyer as soon as possible how to handle such an inheritance.

A supplemental needs trusts may be a good solution so the beneficiary with a disability can receive the inheritance without loss of benefits.  You can see more on SNTs here.  https://galligan-law.com/how-do-special-needs-trusts-work/  

The high level of federal exemption for estates has led to fewer disclaimers than in the past, but in a few short years—January 1, 2026—the exemption will drop down to a much lower level, and it’s likely inheritance disclaimers will return.  So, if you want to consider a disclaimer, definitely speak to a qualified attorney who can assist you with the process.

Reference: NWI Times (Nov. 14, 2021) “Estate Planning: Disclaimers”

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Common Wealth Transfer Mistakes

A legacy plan is a vital part of the financial planning process, ensuring the assets you have spent your entire life accumulating will transfer to the people and organizations you want, and that family members are prepared to inherit and execute your wishes.  However, four common errors can derail this wealth transfer, and send individuals, families, and their legacies, off track.  Kiplinger’s recent article entitled “4 Reasons Families Fail When Transferring Wealth” explains further.

Failure to create a plan. It’s hard for people to think about their own death and the process can be intimidating. This can make us delay our estate planning. If you don’t have the appropriate estate plan in place, your goals and wishes won’t be carried out. So, it is important to have a legacy plan in place to ensure proper wealth transfer. A legacy plan can evolve over time, but a plan should be grounded in what your or your family envisions today, but with the flexibility to be amended for changes in the future.  See this article for an idea of how wealth transfer works in an estate plan and how to get the process started.  https://galligan-law.com/how-to-begin-the-estate-planning-process/

Poor communication and a lack of trust. Failing to communicate a plan early can create issues between generations, especially if it is different than adult children might expect or incorporates other people and organizations that come as a surprise to heirs. Bring adult children into the conversation to establish the communication early on. You can focus on the overall, high-level strategy. This includes reviewing timing, familial values and planning objectives. Open communication can mitigate negative feelings, such as distrust or confusion among family members, and make for a more successful transfer.

Poor preparation. The ability to get individual family members on board with defined roles can be difficult, but it can alleviate a lot of potential headaches and obstacles in the future.  This is critical for wealth transfer in roles such as executors, trustees and agents.

Overlooked essentials. Consider hiring a team of specialists, such as a financial adviser, tax professional and estate planning attorney, who can work in together to ensure the plan will meet its intended objectives and complete a wealth transfer in accordance with your wishes.

Whether creating a legacy plan today, or as part of the millions of households in the Great Wealth Transfer that will establish plans soon if they haven’t already, preparation and flexibility are essential elements to wealth transfer success.

Create a legacy plan that is right for you, have open communication with your family and review philosophies and values to make certain that everyone’s on the same page. As a result, your loved ones will have the ability to understand, respect and meaningfully execute the legacy plan’s objectives.

Reference: Kiplinger (Aug. 29, 2021) “4 Reasons Families Fail When Transferring Wealth”

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Is it Better to Give or let Kids Inherit?

Should an inheritance remain an inheritance, given to children only after their parents die, or should parents use some of the money to help their kids out while they are still living? That’s a question that many families grapple with, reports a recent article “When to Give Inheritance Money to Your Kids,” from The Wall Street Journal.

Not every family can afford to give their children an advance on their inheritance, but for those who can, there are some things to consider:

Some financial advisors believe that “gifting with warm hands” is a better way to go. Parents can enjoy seeing their children and grandchildren benefit from having the help, based on when it is needed. Decoupling an inheritance from parental death is a happier scenario than the alternative.

Others believe that current financial needs, taxes and the tax situations of the parents and children ought to be the deciding factor. First, is there enough money for the parents to live comfortably in retirement? That includes being prepared for the cost of an unexpected health crisis that might lead them to need short- and long-term care. Follow that by understanding the tax situation of both parents and heirs. Once those answers are fully formed, then a discussion about gifting can move forward.

Another school of thought is to stop saving every penny and enjoy life to its fullest right here, right now. Some people are more concerned with maxing out their 401(k) plans than enjoying their lives. A healthy balance between protecting assets for later years, creating wealth for the next generation and having some fun too is the goal for many families.

Regardless of how you see your situation, one thing is sure: if you have any concerns about how your children will handle an inheritance, make a gift while you are living. You’ll get to see how they handle it, responsibility or recklessly. This may inform your planning for the future, including the use of spendthrift trusts.

The pandemic has forced many people to confront their own mortality and consider how they really want to spend the rest of their lives, as well as their assets. Many parents are preparing to make changes in their estate and gifting plans to accommodate needs that have arisen as a result of COVID’s economic impact.

Talk with your children about finances—yours and theirs. Discuss their needs, especially if they have been unemployed for an extended period of time. If they need money for something critical, like paying for health insurance or catching up on student loans, the gift should be made with a clear understanding of its intended purpose.

Your estate planning attorney can help create a plan that works while you are living and after you have passed. You can also see my thoughts on how to leave to your kids in a way that protects them here.  https://galligan-law.com/protecting-money-from-a-childs-divorce/

Reference: The Wall Street Journal (April 30, 2021) “When to Give Inheritance Money to Your Kids”

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