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Using Disclaimers In Post-Death
Estate Planning
By Doron M. Tisser
Disclaimers can save an intended beneficiary
from a significant tax liability. But they have to
be used carefully to be effective.
Doron M. Tisser,
founder of the Tisser Law Group, In Woodland Hills,
California, is certified as a specialist in probate, es- This arTicle will look at the use of disclaimers in
tate planning and trust law, as well as in taxation post-death estate planning. While disclaimers can be used
law, by the State Bar of California Board of Legal
for correcting or modifying a person’s estate plan after he
Specialization. He has published articles and mate-
rials for Estate Planning magazine and for Califor- or she has died, they can also be used to do estate and
nia Continuing Education of the Bar. He has been tax planning for a surviving beneficiary and other fam-
a frequent speaker and lecturer at estate and tax
ily members. There are two important matters to keep in
planning conferences and seminars, including
those presented by the California State Bar, Califor- mind, however. First, disclaimers can be used with respect
nia Continuing Education of the Bar, California CPA to lifetime gifts. While many of the rules for gifts are iden-
Education Foundation, Society of Financial Service
tical to those discussed in this article, this article will focus
Professionals, Life Insurance Leaders’ Round Table,
and various other professional organizations. Doron on disclaimers with respect to assets received as a result
has taught at UCLA, USC and California Lutheran of a person’s death. Second, the matters discussed in this
University. In addition to being chosen by his peers
article all have exceptions; this article should not be relied
as a Super Lawyer in 2009, 2010 and 2011 for South-
ern California. He has been elected to Who’s Who in on with respect to making disclaimers without a thorough
American Law, Who’s Who in Practicing Attorneys, review of existing law.
Who’s Who of Emerging Leaders in America, Presi-
dential Who’s Who and Marquis’ Who’s Who in the
World. He can be reached at doron@tisserlaw.com. 1. What is a Disclaimer?
A disclaimer is a method of refusing to accept assets that
would otherwise have been distributed to a person as a re-
sult of another person’s death. In effect, the person mak-
ing the disclaimer (the disclaimant) would be saying “I do
not want that particular asset.” The asset would then be
38 | The Practical Lawyer February 2012
Disclaimers | 39
distributed to whoever would have received those assets (the beneficiary) had the disclaimant died before
the decedent.
For tax purposes, the asset is treated as being distributed directly from the decedent to the beneficiary
and the disclaimant is ignored in the transfer of the asset.
Observation. Internal Revenue Code (“Code”) section 2046, which controls disclaimers for pur-
poses of estate taxes, refers to Code section 2518 for the requirements for a qualified disclaimer.
Therefore, Code section 2518 controls the requirements for making disclaimers.
Caution. A disclaimer that is not a qualified disclaimer can result in gift taxes. In order to have a
qualified disclaimer, it is necessary that certain requirements (discussed below) are met.
A disclaimer that is not a qualified disclaimer will result in the disclaimant being treated for tax pur-
poses as having received the asset and then making a gift to the beneficiary. This gift will either reduce the
disclaimant’s exemption equivalent amount or, if it exceeds that amount, will result in a taxable gift.
For purposes of this article, a disclaimer will be treated as a qualified disclaimer, unless otherwise noted.
2. consequences Of Disclaimers
It is important to remember that the beneficiary receiving the asset as a result of the disclaimer becomes the
legal owner of that asset and the disclaimant has no further legal rights to that asset. Therefore, it is impor-
tant to determine, before making the disclaimer, if the disclaimant will need the asset or the income from
the asset. In addition, if the disclaimant disclaims one-half of a piece of real estate and ends up co-owning
the real estate with the beneficiary, the disclaimant will probably not be able to sell his or her interest in the
property, nor refinance that property, without the beneficiary’s approval.
3. Planning For Disclaimers
One of the most important requirements for having a qualified disclaimer is that the disclaimant cannot
have benefitted from the asset to be disclaimed. It is, therefore, very important that no assets of a decedent
be used or collected, nor should the name on any accounts of the decedent be changed, until a decision has
been made about whether a disclaimer will be made.
Specifically, life insurance proceeds and IRA and other retirement benefits should not be collected or
applied for until a decision has been reached about whether a disclaimer should be made.
Disclaimants include all beneficiaries of an estate or trust, as well as the beneficiaries of life insurance
proceeds, IRAs and retirement benefits, and bank accounts. Therefore, thought should be given to notify-
ing each beneficiary who is a client of the ability to disclaim. While the majority of beneficiaries will not
disclaim assets, those that are contemplating a disclaimer should immediately notify the fiduciary in charge
of the estate or trust (and their tax advisors) in order to allow the assets that might be disclaimed to be seg-
40 | The Practical Lawyer February 2012
regated. This ensures that the disclaimant does not benefit from those assets while deciding about making a
disclaimer, and inadvertently prevent the making of a qualified disclaimer.
Caution. Oftentimes, various advisors (such as life insurance agents and IRA and plan administra-
tors) try to be helpful to beneficiaries by having them sign documents for collection of the monies as
quickly as possible after a person’s death and then deliver the money to them. If this is done before
the beneficiaries are notified of the ability to disclaim, the collection of the monies can cause ir-
reversible tax consequences that might have been otherwise avoided and will prevent a disclaimer
from being made.
It is very important that the tax advisor notify the client right away not to sign any papers for
collection of monies until disclaimers have been discussed. If possible, the other advisors (such as
the life insurance agents) should be educated about the need to defer the collection of monies until
a final decision has been made about disclaimers.
Observation. There has been an ongoing debate over whether the tax advisor should have the
client sign a document stating that he or she does not want to make a disclaimer so that there is no
confusion in the future over whether disclaimers were discussed. Remembering that the failure to
make a proper disclaimer can result in large, irreversible tax consequences, serious thought should
be given to this issue.
4. Requirements For A Qualified Disclaimer
A qualified disclaimer is an irrevocable and unqualified refusal to accept an interest in property which meets
all of the requirements discussed below. These requirements are strict and unforgiving; failure to follow all
of the requirements will result in unnecessary gift tax issues.
Writing. The disclaimer must be in writing. Code §2518(b)(1).
Delivery. The disclaimer must be delivered to the person in possession of the asset to be disclaimed, usu-
ally the trustee of the trust which will make the distribution or the executor of the decedent’s estate. Code
§2518(b)(2).
Observation. If a disclaimer is to be delivered to an executor, state law should be checked to see
whether the disclaimer needs to be filed with a probate court within a certain time period.
Caution. In order to be able to prove that the disclaimer was delivered to the appropriate person,
it is advisable to have the person to whom it is delivered sign an acknowledgement of the delivery,
and have the acknowledgment notarized.
Time limit. The disclaimer must be delivered within nine months after the decedent’s death. Code
§2518(b)(2).
