What is a Disclaimer of Inheritance?
Disclaimer of inheritance is a statement made by a person to refuse all or part of the inheritance she would have received, whether it is under a will or a trust. The statement must be in writing and typically must be signed by the disclaiming person. A disclaimer may have some tax benefits or may allow the property to pass to someone else. It primarily allows the disclaiming person to avoid creditor actions against the property coming to her. This is particularly important in California , where settlor of a trust cannot leave property to the beneficiaries in a manner that could protect the assets from the beneficiaries’ creditors or spouses. A disclaimer allows the settlor to place the property in the hands of an intermediary that may be able to do what the settlor wished to accomplish.
Legal Basis in California
In California, the use of disclaimers is governed by the statutory framework provided in the California Probate Code. A disclaimer of inheritance, often executed by a person unwilling to accept property or property rights passed to him under will, trust agreement, or intestate succession, must comply with certain conditions set forth in the California Probate Code § 278, et. seq. Accepted disclaimer forms are also governed by California Probate Code § 2503 et. seq. Pursuant to California Probate Code §2652, any person may "disclaim any interest in or power over any property…that is the subject of a present or future interest." However, such a disclaimer must be "irrevocable…in writing, duly executed and delivered to the transferor or custodian of the property and to the person for whose benefit the instrument of . . . transfer is made[.]" The executed disclaimer must be delivered "within nine months after the date the disclaimant attains the age of 18 years[.]" Further, in the event that the disclaimed interest is a joint or community interest, with the one month grace period narrowly defined in the statute, the "disclaiming spouse or partner must deliver the disclaimer within one month after the creation of the joint interest or community interest[.]" In California, a disclaimer of an interest within an insurance contract, retirement contract or employee benefit plan may be made by the contract owner in accordance with the terms therein, or by a beneficiary in writing to the insurer, employer, or administrator, as appropriate. Any person transferring money or other property "upon a valid written request" is presumed to have acted in reliance upon the validity of the claims of the person requesting the property. Generally, a good faith failure (due to lack of knowledge or mistaken belief) of a person to return the transferred property is a defense against an action for its recovery. When the value of the property surrendered to the recipient of the disclaimer does not exceed $5,000, the disclaimer is "conclusive of any claim thereafter made against the recipient…by reason of the recipient receiving the property[.]"
Components of Disclaimer Form
A disclaimer of inheritance in California is a legal document, and should include specific legal language and clauses to be considered valid by the probate court. A disclaimer of inheritance should contain:
- Legal name – The person making the disclaimer should accurately spell their legal name, the name listed on their birth certificate or citizenship documents. The name should match other contesting documents in the probate file.
- Description of the property being disclaimed – the description used for other assets in the estate should be copied exactly.
- Signature – The disclaimer should be signed by the person making the disclaimer, stating their intent to disclaim the inheritance. Disclaimers are irrevocable once filed with the probate court.
- Date of disclaimer – The disclaimer should be dated by the person who is making it. This does not have to be an exact date of signing as long as it can be proven before the probate court that the disclaimer was signed prior to the inheritance being distributed.
- Legal capacity to disclaim – The legal language that needs to be included in a California disclaimer of inheritance states that the person disclaims the property "free of any claims or conditions" (Probate Code Section 2780.)
- No interests in the property – Stating that the person making the disclaimer did not receive any benefit from the property they are disclaiming (Probate Code Section 2782 (a) (7).)
- Signature in the presence of a notary public – Disclaimers are required to be signed by the person disclaiming in front of a California notary public with the official notary seal and signature.
- Mentioning other disclaimers on the property – In the interest of expediting the probate process, if there are other people who are disclaiming the inheritance, that should be mentioned on the disclaimer as well.
Submitting the Disclaimer Form
In California, the process for filing a disclaimer of inheritance form may vary slightly by county, but generally follows the same basic steps:
- Preparation of the Disclaimer Form – As suggested in part (a) above, the disclaimer form must meet certain contents requirements in order to be valid, including identification of the property being disclaimed, a statement of disclaimer, and the signature of the disclaimant and a witness. See Cal. Prob. Code §§ 279- 279.7; see also, Cal. Probate Courts, Rules of Court Rule 9.800 (California Rules of Court).
- Filing the Disclaimer – The disclaimant must file the disclaimer form with the probate court. Cal. Prob. Code § 280. The court clerk may request a filing fee. Failure to file the disclaimer form in a timely manner can lead to potential problems. Id. at § 282; see also, Estate of Anca and Papaghiorghe (2005) 126 Cal. App. 4th 902, 907 (timeliness of disclaimer filing by trustee was not a bar to the disclaimer).
- Delivery to the Personal Representative – The disclaimant must then serve a copy of the disclaimer form on the personal representative of the decedent’s estate. Cal. Prob. Code § 281(a), (b).
- Filing with Tax Entities – If the value of the disclaimed share exceeds $5,000, the disclaimant must provide a copy of the disclaimer form to the IRS and California and State Board of Equalization (or relevant county tax assessor) within nine months from the date of the transfer. Cal. Prob. Code § 282; see also, Rev. & Tax. Code §§ 3387; 13807. The disclaimant must also send an additional copy of the disclaimer form to the State Controller, in care of the California Unclaimed Property Division located in Sacramento. See Cal. Prob. Code § 282; see also, 18 U.S.C. § 659. Additionally, the disclaimant must notify the trustee of any trust to which his or her share passes as a result of the disclaimer. See, Egelhofer v. United States (9th Cir. 2004) 218 F.3d 887, 891.
If the disclaimer is executed in the context of a Community Property as Separate Property ("CPWS") agreement, the parties to the CPWS must also make an election on the appropriate documents in accordance with Cal. Prob Code § 100%; see also, Cal. Fam. Code § 2581; Mortgage Capital, LLC v. Countrywide Home Loans, Inc. (2006) 138 Cal. App. 4th 1030, 1033.
Effects of Refusing an Inheritance
Aside from the procedural difficulties of filing a disclaimer of inheritance, there are also potential financial and legal consequences to the act of disclaiming an inheritance in California.
First, there is the issue of facing estate taxes. Your inheritance immediately becomes available to a creditors and can be taken from you to pay off any debts of the deceased person or their estate. If you file a disclaimer of your inheritance, however, the property you would have inherited would pass as if you had predeceased the deceased person. This means that the property would not become available as part of the estate and, thus, would not be available to pay creditors or taxes in the state of California.
It is important to remember that the above property would be inherited by the persons or party if you had not disclaimed your inheritance. Since filing a disclaimer is actually an attempt to prevent the inheritance of the property, this does not mess with the debts the deceased person may owe the IRS or state government . Because the estate is used to pay debts first before being distributed to the beneficiaries, this does not limit taxes. It could even increase taxes that could be owed, since what would have been available to pay taxes but is now not being distributed to family members, who will then have to pay the tax out of their own pockets.
Another possibility is that, since the file disclaimer act as though the person had never received that property in the first place, the property could end up in the hands of a person or party that would not have received the property if the disclaimer had not been filed. This means that you would be responsible for paying the tax on that property. Since the estate is no longer "yours", because you refused the inheritance, you become responsible for paying the tax on it yourself as if you had inherited it and did not disclaimed your inheritance.
Template and Sample Disclaimer Form
As example of of an inheritance disclaimer form used in California is provided below. However, it is always a good idea to have legal help on the form and at least consult an experienced estate planning attorney so that it is done right. There are certain ways that inheritance disclaimers must be executed in order for them to be valid. The disclaimer form also may have to be filed with a County Recorder’s office or other governmental office. Legal advice is suggested for the execution and filing of the disclaimer.
Sample Disclaimer of Inheritance
I, ______________________________________, currently residing at ______________________________________, hereby declare this to be my Disclaimer of Inheritance, pursuant to California Probate Code 280, et seq.
- The decedent is ________________________________, a ________________ (Executor/ Administrator).
- The decedent died testate or intestate on _______________, 20 ___, and his estate is being probated in Los Angeles County, Case No. _____.
- The nature of my relationship to the decedent is _____________________________
- By this instrument, I disclaim any other or further interest (to me, my spouse and/or my children) in the estate of the decedent, which I would otherwise take as his heir, legatee or devisee, except the following:
Describe the property with sufficient particularity to distinguish it from other property. If possible, give the recording information for the deed or donative instrument.
If you need more space, attach a piece of paper and write "Continuation of Item 4" at the top of the page. List the items on the attached paper the same way as above.
5. If no consideration was given for this disclaimer, check the following box
I am not giving up rights to property as a result of receiving any form of consideration in exchange for this disclaimer. The consideration may include expenses paid for me, my children or my spouse by the person for whom I am disclaiming my interest.
- I understand that my right of disclaimer comes from the laws of intestate succession in the State of California.
- I also understand that by signing this disclaimer, I am voluntarily giving up my right of inheritance in the interest(s) described herein pursuant to the laws of the State of California.
- I understand that I shall not disclaim this interest in any property if I have received any form of consideration for the waiver of my right of inheritance.
- I further state that I received full advice regarding the effect of my actions herein and that I am acting with full knowledge of all the circumstances contained herein.
- This Disclaimer is made under the California Probate Code Section 280.
Obtaining Legal Assistance
Given the complexity of California’s disclaimer of inheritance law, it is unwise to delay consulting an attorney experienced with these types of matters until the time you need one most. This would include the time that someone has informed you that they intend to leave you something in their estate plan, or at the time you become aware of a family member’s or loved one’s intent to disinherit you from their estate plan. Although there is an official California form available for a disclaimer, the form may not be directly usable in the circumstances that apply to your situation. In addition, there may be circumstances that apply to your case that are not even contemplated by the official form. Such circumstances should also be addressed to a disclaimer before the disclaimer is executed . Lastly, there may be issues you need to consider or even an additional disclaimer you might need to execute before the disclaimer can be executed and delivered. For example, if a disclaimer of inheritance is in your favor, but there will be a disclaimer of inheritance in favor of a charity or other third party if your disclaimer is effective, then you may need to have the other disclaimer prepared and executed before yours. Or, there may be an issue as to whether a trust property is community property or separate property, because the result could change the disclaimed share of the surviving spouse’s interest or eliminate the disclaimer altogether if it invalidates the trust. Consulting a qualified attorney as soon as possible about a disclaimer of inheritance can help ensure there are no surprises down the road – thus proving beneficial to everyone involved.