What is a Disclaimer?

A disclaimer is an irrevocable refusal to accept an interest in property. In other words, it is the legal way of saying “no thank you.” The effect of a disclaimer is that the disclaimed property will be treated as if it had never been transferred to the person making the disclaimer. Most states have statutes that allow for disclaimers and describe the method for making a valid disclaimer.

What is a Qualified Disclaimer?

A disclaimer is qualified if it meets certain requirements under the Internal Revenue Code. If these requirements are not met, the person attempting to disclaim the property will be treated as having received the property, and then as having made a gift to the person to whom the property passes as a result of the disclaimer. The disclaimer must meet the following requirements:

  • it is irrevocable;
  • it is unqualified;
  • it is in writing, specifically identifying the disclaimed interest and signed by the person making the disclaimer;
  • the written disclaimer is delivered to the person who is attempting to transfer the property, his legal representative, or the holder of legal title;
  • the written disclaimer must be delivered no more than nine months after the date on which the transfer creating the interest is made, or nine months after the date on which the person making the disclaimer reaches age 21;
  • the person making the disclaimer must not have previously accepted the disclaimed interest or any of its benefits prior to the disclaimer; and
  • the disclaimed interest must pass to a person other than the person making the disclaimer without any direction from the person making the disclaimer. However, a surviving spouse of the person making the transfer may remain as a beneficiary of a trust which receives the disclaimed property.

Why Would I Use a Qualified Disclaimer?

A qualified disclaimer is a very useful estate planning tool that gives a beneficiary the ability to redirect assets after the death of the person making the bequest to another person for tax planning purposes or for nontax purposes. If the qualified disclaimer is considered as part of the estate plan, it allows you to give the beneficiaries the flexibility to determine when and where the assets are most needed after the estate plan is written when circumstances may have changed.