The Saturday Trust—Reasons to Refuse a Bequest

Somebody dies & leaves you with an inheritance you don't want.  Now, what do you do?

It's not necessarily a bad thing to be removed as a trust beneficiary.

photo by dsmp

6 Good Reasons to Refuse a Bequest

Tips from AARP's Estate Planning 

Source:  6 Reasons to Reject a Bequest by G.M. Filisko (13 April 2011)

Generally Speaking
In most instances, when you've been named a beneficiary, and you refuse a bequest, it will be passed onto the next person in line.  Typically, standard trust language stipulates that the "issues" are next in line as if the beneficiary had died, which means that your children will receive the inheritance.

Before you refuse a bequest, it's a good idea to find out how the bequest flows.  In some instances, it may be a good idea to pass it on to someone else, but find out who will be next in line if you refuse.

When an inheritance is refused, the designated beneficiary writes a disclaimer and submits it to the successor trustee.  The disclaimer must be explicitly written and signed, and considered unconditional and irrevocable.

If you do inherit assets that you don't want, it may be possible to refuse one bequest and come up with another inheritance scenario, depending on the authority of the executor to distribute the assets.  Talk with the successor and find out if the bequest arrangement is flexible and how much time you have to decide whether or not you want to accept it.

AARP Recommends

A Wise Tax Decision
If you're in a state where inheritance is taxed, you may want to refuse a bequest, especially if you're in a high tax bracket.  California, Nevada and Florida are among the states that do not have estate or inheritance taxes, but 19 other states do, including Minnesota, Nebraska, Illinois, Oregon and Tennessee.  The good news is that some states like Tennessee are phasing out their inheritance tax, but the dates vary from one state to another, and the taxation rate sometimes depends on the amount and the relationship to the deceased.

More on which states have an inheritance and/or estate taxes:  States with Death Taxes 2013 Chart, Forbes online

State estate tax:  Red
State inheritance tax: Yellow
State with both: Striped

Crap Property
If the property is hard-to-sell or will incur great expense in order to clean it up, it may be a good idea to avoid it altogether.   Acreage in places like Searchlight, Nevada, for example.

Disqualification for Government Aid
Medicaid, Veterans Affairs Aid and Supplemental Security Income can all be adversely affected by inherited assets.  Medicaid will not even allow for the refusal of a bequest.  The recipient is required to accept the assets and then spend them down in order to requalify for eligibility.

Family Drama
If an inherited asset will be managed by a group of relatives who may not get along, it may be worth it to avoid it altogether.  Family cabins, for example, that are managed and maintained by a family group.  It may be possible to disclaim the bequest and be given an asset of equal value if the authority of the successor allows for a variation in the distribution.

Creditor Debt
In the case of extreme financial debt (i.e. bankruptcy), things get dicey when it comes to inheriting assets.  Basically, the inheritance could go directly to the creditors.  Check with a bankruptcy attorney before responding to a bequest during bankruptcy because there are strict rules that govern disclosure.

A "spendthrift" trust legally allows the beneficiaries to receive regular payments from a trust estate and prevents creditors from accessing the principal.  If you are a beneficiary in a spendthrift trust, it might work out better than you'd expect.  In any case, you'll need to work with a qualified advisor, either a bankruptcy attorney or a bankruptcy trustee.

Doing the Right Thing
If you are well off and don't need to inherit more assets, it's okay to decline and let the bequest go to the next one in line.  Again, it's a good idea to find out who is next in line because they might not be the one who is most in need.  You also have the option of accepting a bequest and passing it on during your lifetime.

My Two Cents    

If you know that you have been named a beneficiary, don't be afraid to express any concerns to the trustee before he or she passes away.  If you really don't want to inherit assets, let the trustee know in advance so that he or she can make the necessary changes in the trust.  

A trust is a legal directive, not a Valentine to friends and family.  As a trustee, I want to make fair decisions for my loved ones, but I need their honest feedback in order to do that.  And as a beneficiary, I have the right to express my wishes with regards to inheriting a potential burden later on.

The goal is to leave the ones we love with positive memories of a life well lived.  But, that does not happen without careful planning, empathy and honest communication.

Have a productive week!

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