A disclaimer is a legal term used to describe the unconditional refusal to accept a gift or inheritance from a deceased person’s estate. When a person makes a valid disclaimer, they are treated as if they had never received the disclaimed property for gift and estate tax purposes. This means that they will not owe any taxes on the gift because it was passed on to someone else.
There may be several reasons why someone would choose to disclaim a gift or inheritance. For example, if the gift is of significant value, it could increase the value of their estate. This could result in the inheritor paying additional federal taxes on their estate, which they may not want to do. By disclaiming the gift, they can shift this responsibility to someone else.
A gift disclaimer generally cannot be reversed to an acceptance except in very rare circumstances. Once a gift has been accepted, it can never be disclaimed later on. Additionally, a disclaimer must be made after the testator’s death. Any disclaimers made before this time will not be considered valid.
What are the Elements of a Valid Disclaimer?
To be considered legally enforceable, a valid disclaimer must meet several requirements. These requirements are as follows:
The disclaimer must be in writing, and that writing needs to:
- Identify the property being disclaimed (e.g., $5,000);
- Be written in terms that demonstrate a clear and unconditional refusal; and
- Be signed by the person refusing the interest in the property (or their legal representative).
- The written refusal (i.e., disclaimer) must be delivered to the person transferring the property or their legal representatives.
- Delivery must occur within 9 months of the date of the creation of the interest (or if the inheritor is a minor, then no later than 9 months after they turn 21 years of age).
- Before refusing, the disclaimant must not have accepted any of the property interests or its benefits.
- The property interest must also be passed on to another party without instructions from the person disclaiming the interest.
The disclaimer may not be considered valid if any of these requirements are not met.
Can a Gift or Inheritance be Disclaimed in Part and Accepted in Part?
In general, a person who receives a gift or inheritance cannot disclaim part of it and accept the rest. However, if the disclaimant is the receiver of multiple gifts, they may be able to disclaim one gift and accept another.
For example, if the deceased gift them money and a car, the disclaimant may accept and disclaim the car (or vice versa). In this scenario, the gifts are considered separate, and the disclaimant can choose which gifts they wish to keep and which they wish to reject.
How Can a Disclaimer Be Used to Reduce Estate Taxes?
A disclaimer can be used to reduce estate taxes in certain situations. For example, if a person dies and leaves everything to their spouse and nothing to their children, the spouse may disclaim their inheritance up to the amount of the estate tax exclusion. This allows some portion of the deceased’s estate to be passed on to their children tax-free.
What Happens if I Don’t Pay Gift Tax?
When you gift someone, you may be required to pay gift tax if the gift value exceeds the annual gift tax exclusion amount, which is $17,000 per recipient ($34,000 per married couple) per recipient for the tax year 2023. If you fail to pay gift tax on time, the IRS can take legal action to collect the outstanding debt.
The IRS can issue a notice and demand for payment, including the amount of tax owed plus any penalties and interest accrued. If you do not pay the tax within the timeframe specified in the notice, the IRS can take additional enforcement actions, such as placing a lien on your property or garnishing your wages.
The statute of limitations on the collection of gift tax is generally 10 years from the date the tax was assessed. However, if you fail to pay the tax, the statute of limitations does not begin to run until the tax is paid in full.
What Happens if I Don’t Pay Estate Taxes?
If you do not pay estate taxes owed, the IRS may take legal action to collect the unpaid tax debt. The IRS has broad powers to collect taxes, including placing a lien on your property or garnishing your wages.
In addition to the outstanding tax debt, you may be subject to penalties and interest on the unpaid amount. The IRS may also assess additional penalties if they determine that you intentionally failed to pay the tax or made false statements on your tax return.
If you do not pay the estate tax, the IRS may also seize assets from the estate to satisfy the tax debt, such as real estate, bank accounts, and personal property.
The IRS has a statute of limitations on estate tax collection, generally 10 years from the date the tax was assessed. However, if you fail to pay the tax, the statute of limitations does not begin to run until the tax is paid in full.
If you are facing estate tax issues, consult with an experienced tax attorney who can represent you before the IRS if necessary. Your attorney can help you negotiate with the IRS to reduce your tax liability or establish a payment plan that works for your financial situation.
How Do I Know How Much I Owe?
You must first calculate the estate’s value to determine how much estate tax you owe. The estate’s value is determined by adding up the fair market value of all the deceased person’s assets at the time of their death.
Once you have determined the value of the estate, you can then calculate the estate tax owed using the federal estate tax rate schedule. As of 2023, the federal estate tax ranges from 18% to 40% and generally only applies to assets over $12.92 million.
Some states also have their own estate or inheritance tax laws. State estate tax laws vary widely, so it is important to consult with an experienced tax attorney who can help you with your state’s specific tax laws and requirements.
Do I Need to Hire an Estate Planning Attorney for Help?
Consulting with an experienced estate planning attorney is recommended to ensure that your estate plan is sensitive to your needs and the needs of your loved ones. An attorney can help you determine which type of will or trust is best for you and can help you limit your tax liability.
LegalMatch is an online service that can help connect you with experienced attorneys in your area who practice in the area of law you need assistance with, including estate planning and probate law. You can submit your case details on our website, and attorneys interested in taking on your case will review your information and provide you with a case evaluation.
If you are the receiver of an inheritance or gift you would like to disclaim, use LegalMatch to find an attorney to assist you with this process to ensure that all legal requirements are met, and your wishes are properly documented.
