AEGIS Financial

When a Client passes away there are alternative options for Beneficiaries

Having a conversation with your AEGIS Financial advisor will provide you with straight- forward answers and a clear picture on how to move forward …

When one of our clients passed away earlier this year, he left all his investment and IRA accounts to one Beneficiary. While grateful for the windfall, the Beneficiary asked if there was a way, she could refuse some of the money and instead have it pass directly to her adult children. Although inconceivable to some people, there is a legal process that one can employ if they choose to refuse an inheritance. This process is referred to as Disclaiming an Inheritance. Once the decision was made to disclaim, the team at AEGIS Financial contacted the Estate attorney to help ensure that all the proper steps were taken and the proper documents were completed.

When might it make sense for me to disclaim an inheritance?

There are no specific rules for when you can or cannot disclaim an inheritance; it is more a matter of personal choice. With that in mind, you may choose to refuse an inheritance for any of the following reasons:

• You would rather have someone else, such as a sibling, child, or charity, inherit the assets that were intended to go to you, and you want a workaround for paying gift tax.
• Inheriting assets would increase the size of your estate and potentially create tax planning complications for your own heirs once it is time to pass your assets on.
• Accepting certain assets, such as money held in an IRA, would push you into a higher tax bracket and you would rather avoid getting stuck with a large tax bill.
• Allowing the inheritance to pass to someone else would allow for the wishes of the deceased person to be more accurately fulfilled.
• Receiving an inheritance would affect your ability to qualify for certain types of federal benefits, such as student loans or Medicaid.
• You just do not need the inheritance because you are financially stable and would rather someone else benefit from it.

Those are all valid reasons to disclaim inheritance, but in some instances, it may come down to simply not wanting whatever it is you are supposed to inherit.

Say, for example, a relative leaves you their home, which needs extensive repairs or has back taxes due. If the will stipulates that you cannot sell the property and renting it out is not an option, then disclaiming it may be the best choice for shifting the financial burden of owning it to someone else.

What are the general guidelines for Disclaiming?

Any primary or contingent IRA beneficiary can disclaim all or a portion of his or her beneficial interest in a deceased participant’s IRA but only if certain conditions are met. The disclaimer must be a “qualified disclaimer” under Internal Revenue Code section 2518 and is an irrevocable election.

To qualify under section 2518 of the Code, the disclaimer must:

• The disclaimer must be in writing, in accordance with, and specifically reference, sections 2518 (a) & (b) of the IRS Code.
• The disclaimer must be received by Custodian not later than the date which is 9 months after the later of:
  • the date of death of the participant, or
  • the date the beneficiary attains age 21
• The disclaimer must include the disclaimant’s name, the name of the deceased and the Custodian’s IRA number.
• The disclaimer must reference the disclaimed amount (i.e. entire account, 20% of their beneficial share, $30,000).
• In the disclaimer, the beneficiary disclaiming the IRA account cannot designate who is to receive the funds once they disclaim.
• The disclaimer must be notarized but does not have to be signed by the court.
• The beneficiary cannot have taken any distributions or have claimed any interest from the deceased participant’s IRA. A very limited exception applies in the case of a deceased participant’s RMD that has already been taken or will be taken by the beneficiary. Under this exception, all the conditions of IRS Revenue Ruling 2005-36 must be followed. See IRS Revenue Ruling 2005-36 for more information.

What is the best option?

Every situation is different. Just know that the clock is ticking, taking money from any account impacts your ability to disclaim, and it is one of those “forever decisions”. We pride ourselves on always giving advice which benefits you, the client, first and putting your interests before ours. If there is someone you care about who needs unbiased client-first advice, please feel free to refer them to the advisors at AEGIS Financial.