Often times, the possibility of inheritance can bring people out of the woodwork, looking for a windfall of gifts they may stand to inherit. And in most cases, almost anyone would love to get an unexpected wealth of property and gifts. But sometimes situations arise where those gifts may not be welcomed with open arms. In these cases, renunciation might be the answer.
Renunciation (also called Disclaimer for federal tax purposes) is the formal rejection of an inheritance of property. It is valid for real or personal property that is given by will, beneficiary designation, or through intestate succession. And, while uncommon, it could prove useful if an heir believes he or she would be better off without their inheritance.
Consider the following situations.
- Imagine that your “rich uncle” just passed away, leaving you – his only heir – an investment property in a popular vacation destination. The property is expected to bring in thousands of dollars in rental income every year. You are financially stable already and are worried that the increased income could put you in a higher tax bracket. You have one child, and you would rather that he receives the income instead. You may want to consider renouncing so that you never receive the property, and it passes directly to your child.
- Alternatively, imagine that the same uncle dies and leaves the same property to you. However, you recently started receiving government benefits and are concerned that the increase in income and the additional assets will make you ineligible to continue receiving those. Your child could benefit from the property. You may want to consider renouncing so that the property goes to your son and does not interfere with your eligibility.
- Some people may consider renouncing because the property is undesirable or “not worth the cost.” Consider that your uncle thought he was leaving you his dream home where you could retire and spend your days, but the property is dilapidated and the taxes have not been paid in years. You have no interest in fixing the property or paying the taxes. You and your son may want to consider renouncing your interests in the property and avoid the costs associated with keeping it. The property would continue to pass under the intestate succession statutes as if you and your son both died before your uncle until a remote relative either accepts he inheritance or the property escheats to the estate.
Renunciations must be made within a specified time and can be for the full interest in property, a partial interest, and even a future interest. The renunciation does not need to be for all of the property inherited – the heir can choose to renounce part of the property and keep part if they want to. Renunciations must be made in writing and filed with the Clerk of Court in the county where the estate is opened or will be opened. For real property, the renunciation must also be filed with the Register of Deeds in the county or counties where the property is located.
Once the renunciation is properly filed, the person who renounced is treated as if they died immediately before the decedent. This means that, for purposes of the renounced property, it passes to the next person in line – the next person named in the will or, if there is no will, to the next in the family line.
So now consider this situation: your uncle dies and leaves you and your sister a piece of property. You don’t want the increased income and you want your sister to have the property. Can you simply renounce your interest and have it go to your sister or does your interest fall to your child? You best option: talk to an attorney.
If you have inherited property, and you are not sure whether you want to keep it, you do have options. Be sure to consult with your attorney and tax professional to help you make the best decision for your unique situation.
Published by Emily Price on October 24, 2016