South Carolina Estate Lawyer A – Z: “Disclaimer”
June 11, 2011
Installment D of A – Z is DISCLAIMER.
Internal Revenue Code section 2518 allows a South Carolina beneficiary to execute a qualified disclaimer, resulting in transmission of the disclaimed property as if the disclaimant had predeceased the decedent. Utilizing disclaimers as part of the estate plan builds in flexibility. This technique can be used in the context of disclaimer trust planning for estate tax purposes, or in the context of IRAs and qualified plan transmission to accomplish favorable income tax treatment, to describe but a few uses.
Treasury Regulation section 25.2518-2 lists the following “Requirements for a Qualified Disclaimer”.
(a) In general. For the purposes of section 2518(a), a disclaimer shall be a qualified disclaimer only if it satisfies the requirements of this section. In general, to be a qualified disclaimer—
(1) The disclaimer must be irrevocable and unqualified:
(2) The disclaimer must be in writing;
(3) The writing must be delivered to the person specified in paragraph (b) (2) of this section within the time limitations specified in paragraph (c)(1) of this section;
(4) The disclaimant must not have accepted the interest disclaimed or any of its benefits; and
(5) The interest disclaimed must pass either to the spouse of the decedent or to a person other than the disclaimant without any direction on the part of the person making the disclaimer.
The use of qualified disclaimers should be carefully thought out, and quite frankly, should only be utilized under the supervision of an attorney or tax professional. Disclaimers can be tricky. I have heard the following horror story arise from the uninformed use of disclaimers: A man died without a Last Will. Under SC intestacy law, the beneficiaries of the estate were to be the man’s surviving spouse and his two children. The two children wanted to do the “right thing” by their mother and signed a disclaimer of their inheritance.
The problem? Well, the two children had children of their own. When you disclaim an inheritance, the disclaimed property is treated as though the disclaimant predeceased the Decedent. In this case, under South Carolina’s anti-lapse statute, the inheritance that was disclaimed did not go to the Disclaimants’ mother but instead went to the disclaimants’ children. Making things worse was that the disclaimants’ children were minors, who would have a guardian ad litem appointed for them by the Probate Court to protect their newly created property interests.
The moral of the story is that qualified disclaimers of property should only be undertaken under the supervision of an experienced estate attorney who will carefully analyze the law to determine where the disclaimed property would go after the disclaimer is made.
Like any decent lawyer, I need to add a disclaimer here: unfortunately, it is impossible to offer comprehensive legal advice over the internet, no matter how well researched or written. And remember, reviewing this website and my blogs doesn’t make you a client of my Firm: before relying on any information given on this site, please contact a legal professional to discuss your particular situation.