What is a Qualified Disclaimer?
A qualified disclaimer is a formal refusal to accept interest in property bequeathed in a will or similar document.
How Does a Qualified Disclaimer Work?
Section 2518 of the Internal Revenue Code permits the beneficiary of an estate or trust to make a qualified disclaimer so that for tax purposes it is as though the beneficiary had never received any interest in the property.
Generally, a person can write a will in which he leaves his estate to a survivor, and that will can contain a special clause directing that if the survivor makes any qualified disclaimer in the estate, the disclaimed property will pass into a trust for the benefit of the survivor. When applied properly, a qualified disclaimer can help property pass to contingent beneficiaries without any tax consequence to the person disclaiming the property.
A qualified disclaimer must meet the following requirements:
- It must be in writing.
- It must be received by the property owner (or the property owner's legal representative) within nine months of the date of the transfer or by the transferee's 21st birthday.
- The transferee has not already accepted an interest in the property.
- The property must pass to someone other than the person making the qualified disclaimer.
The person disclaiming the property cannot direct how the disclaimed interest is distributed; rather, the disclaimed interest must pass according to the transferor's directions. Additionally, it is possible to disclaim a portion of property if it is severable into portions. However, a person cannot disclaim property in order to qualify for Medicaid.
Why Does a Qualified Disclaimer Matter?
Qualified disclaimers offer flexibility in estate planning by essentially offering a way to change the provisions of a will to obtain more favorable tax consequences and/or to ensure that the property passes to contingent beneficiaries in the event the primary beneficiary is deceased or chooses not to accept the property. An executor or a trustee might also disclaim property in order to ensure that another estate is taxed at the lowest possible rate.
