Sometimes, a beneficiary doesn’t want to accept some or all of an inheritance.
The refusal of a gift is called a disclaimer. She may want to disclaim her inheritance for tax purposes; if she lives in a state that has an estate tax, she might not want to add more money to her own estate in order to keep her estate below the taxable asset threshold and avoid paying state estate tax upon her death. Also, if her assets are close or equal to the federal estate tax exemption, currently $5.49 million in 2017, she may want to disclaim her inheritance to make sure that her assets will not be pushed beyond the asset limit and therefore be taxed upon her death. New Hampshire does not have a state estate tax, but Massachusetts does. If you are a Massachusetts resident and you die with more than one million dollars in your taxable estate, your estate will pay the tax on the entire value of your estate. New Hampshire residents who own real estate or tangible personal property in Massachusetts may also be subject to the Massachusetts estate tax if their total taxable estate is more than one million dollars. While you would only have to pay Massachusetts estate tax on the value of your property in Massachusetts, in determining the rate of tax your estate will pay, Massachusetts includes your whole estate, not just the portion you own in Massachusetts. Therefore, you pay at the top rate. The definition for what is taxable in Massachusetts is the fair market value of everything you own or have an ownership interest in at the date of your death. According to Massachusetts law, tangible personal property is “movable and has a visible existence and a value of its own, such as automobiles, boats, equipment, furniture, jewelry, coin collections, and silver.” So if you live in New Hampshire and have a bank account with money in a Massachusetts bank, that is not considered tangible personal property and that account would not subject you to the Massachusetts tax.
Another reason for not wanting to accept the gift could be that the next person in line to receive the money upon her disclaimer is one that she wants to give a gift of money to during her lifetime anyway. Instead of giving that person a gift herself, thereby reducing her federal estate tax exemption by the amount of the gift, and possibly increasing the chances that her estate will be taxed upon her death, she can disclaim her inheritance and essentially use it as a “gift” to the beneficiary she wanted to give money to in the first place without incurring any potential tax issues in the future.
She may also want to disclaim her inheritance if she is to receive an undesirable piece of real estate or if she has creditors that would take the money she inherits. She can disclaim all or just part of her inheritance to suit her needs and her particular situation.
Under NH RSA 563-B, there are certain requirements that need to be met in order to make a disclaimer and if she doesn’t meet them, the disclaimer will be considered void, or if the next beneficiary in line has already received the money, it could count as a gift to that person, thereby increasing the chance of her having a taxable estate upon her death.
To make a disclaimer in New Hampshire, she must submit the disclaimer to either the representative of the estate or the person who would be entitled to the assets in the event of a disclaimer no later than 9 months after the decedent’s death or 9 months after she has the right to take the assets, through a writing which 1) describes the property or interest disclaimed 2) declares the disclaimer and extent thereof, and 3) is signed by the disclaimant.
She can’t choose who gets the money that she disclaimed, so she can’t say “I want this money to go to my friend, Alex.” The money will instead pass to the next beneficiary in accordance with the terms of the estate or trust. She also can’t reverse a disclaimer once it has been completed, and if she wants to disclaim her inheritance, she cannot accept the property, an interest in it, or receive a benefit from it.
It’s important to discuss your options with an estate planning attorney who can review your options with you and help you decide the best route to ensure your financial future.
Andrea Nelson is an attorney at Hamblett & Kerrigan who focuses her practice in the area of estate planning, including wills, trusts, health and financial powers of attorney. Attorney Nelson can be reached at email@example.com.