I occasionally talk with clients who recently received notice that they are inheriting assets and want to know if they are required to accept this inheritance. The short answer is no. A person can refuse the inheritance, and it then will be distributed to the next person named to receive it. This may be the children or descendants of the person refusing the assets, or it may be someone else.

Who it goes to next depends on the terms of the will or the trust of the person who died. The person refusing the asset cannot direct who the asset will go to next. Formally refusing these inherited assets is called making a “disclaimer.”

A disclaimer must be made in writing, declaring that the disclaimant is rejecting the property. It must accurately describe the property; it must be signed by the disclaimant or their fiduciary; it must be acknowledged before a notary; it must be irrevocable; it must not direct the distribution of the asset; and it must be delivered to the trustee, personal representative or court clerk where the venue of administration would be appropriate.

The disclaimant must not have taken possession, ownership or control of the asset prior to making the disclaimer. For example, if the asset to be disclaimed is farmland, the disclaimant cannot have taken rent for the property, taken possession of the property or otherwise taken actions to benefit from the property.

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Purpose of disclaimers

Often, people will make a disclaimer for the purpose of avoiding estate, inheritance or gift tax consequences. The idea is that since the person did not take ownership of the asset, it is not counted as an asset of theirs for estate or gift tax calculations.

To effectively avoid these tax consequences, the disclaimer must follow all of the above requirements with the additional requirement that the disclaimer be made within nine months of the time the disclaimer’s interest in the property was created. Generally, this will mean that the disclaimer must be made within nine months of the grantor’s death.

In Minnesota, it also is important that the person making the disclaimer is solvent, and a person making a disclaimer will need to disclose this disclaimer on any medical assistance or elderly waiver application that is made within five years of the disclaimer. The disclaimed assets will be considered uncompensated transfers and will cause a period of ineligibility to receive medical assistance and elderly waiver benefits.

If you have questions on whether you should disclaim inherited assets, talk with your tax consultant or attorney soon.

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