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Context Update

The context is a trust and beneficiaries who disclaimed earlier did so to help another beneficiary. The ones who want to disclaim now also want to do so to help the same beneficiary.

Original Question

Consider a situation where:

  1. There are many beneficiaries for an inheritance.
  2. Some of the beneficiaries disclaim while the grantor is alive.
  3. A decade passes and the grantor dies.
  4. The beneficiaries who did not disclaim earlier want to disclaim now.

Do all disclaimers have to be "brought up to date," or is it OK that the disclaimers were executed over many years, and some while the grantor was alive and some when the grantor is dead?

If this varies by state, then the state of interest is Utah.

Does everyone need to disclaim within a similar timeframe (such as within 12 months), or can substantial time elapse between disclaimers (such as years or even decades)?

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What Is A Disclaimer?

A disclaimer is an unequivocal and irrevocable rejection of a donative transfer of property, such as a gift or inheritance, without providing any direction or guidance regarding who will receive it in lieu of the disclaimer beneficiary of the transfer.

In other words, even if someone leaves you something in their will, you can refuse to accept it.

Why Would Someone Make A Disclaimer?

There are a variety of reasons someone might disclaim an inheritance.

  • A disclaimer might reduce the amount of taxes owed related to the property disclaimed in the long run. The specifics of the tax laws that could cause this to be the case are beyond the scope of this answer.

  • The person disclaiming the inheritance might have large outstanding debts that would lead to an imminent bankruptcy, such that the inheritance would just go to their creditors any way.

  • The property inherited might have negative value before, for example, it is a toxic waste site that any owner of the property would have to clean up at the owner's expense.

  • The property inherited might have negative emotional value to the person disclaiming it, for example, a firearm that was used by the decedent to kill their mother.

  • Inheriting the property might disqualify the person receiving it from essential government benefits such as Medicaid coverage for a seriously ill person who could not obtain insurance otherwise and could not pay the medical bills that could have to be paid with the inherited assets since those assets are not worth much or are to illiquid to be sold in time to pay for necessary medical care.

  • Inheriting the property might cause financial aid grants for someone in college to drop so much that almost all of the inheritance would be consumed by increased tuition bills.

  • The person receiving the inheritance might believe that the person who will receive it if a disclaimer is made (i.e. the person who would have received it if the person making the disclaimer had predeceased the decedent leaving the inheritance), needs the inheritance more than the person who is entitled to it.

Only Property Interests That Exist Can Be Disclaimed

You can't disclaim the mere possibility that someone might leave you a gift or inheritance in the future, there has to be some presently existing right to give up before it can be disclaimed. (The technical name for a possibility like this is an "expectancy".) So, you can't disclaim an inheritance (which is a right that comes into being only when someone dies) while they are still alive, although you could disclaim an interest as a beneficiary in a trust that exists already but only takes effect when someone dies.

So, a disclaimer of an inheritance made before someone dies is meaningless and basically "doesn't count". Describing a timely disclaimer following an ineffective disclaimer made during life as bringing the disclaimer up to date isn't really a very accurate description of what is going on, but yes, disclaimers made prior to death do need to be "brought up to date."

An Aside: What Is An Inheritance?

The narrow meaning of "inheritance" is property received as a result of the death of someone who doesn't have a will, in contrast to a "devise" which is property received from someone who died under their will.

But, often the word "inheritance" is used in a broader sense that includes property received both from intestate and testate estates - i.e. both from decedents who do and from decedents do not have wills.

A very broad sense of "inheritance" includes all major donative transfers even if they take the form of lifetime transfers, beneficiary designations, jointly owned property, or trust distributions, but this very broad sense is less common.

Normally, the terms "grantor" and "beneficiary" are used to refer to a person who creates a trust and who is entitled to benefits from a trust, rather than in connection with an inheritance. But, the tags "wills" and "probate" were attached to he question, which would be inconsistent with the existence of a trust. So, it isn't entirely clear what is really meant by the question.

Disclaimer Deadlines For Federal Tax Purposes

Most disclaimers, historically, were done for tax purposes and needed to be made within the nine month deadline from date of death for filing an estate tax return established by the Internal Revenue Code.

The IRS deadline is found at 26 USC § 2518 as clarified by Treasury Regulation § 25.2518-2.

Disclaimer Deadlines Under State Law

Most states followed the IRS lead when they set deadlines for making disclaimers under state law (which governs whether, how and when it is possible to disclaim since a state does not have to allow disclaimers in every situation that the IRS does but can allow disclaimers that the IRS does not recognize as valid for tax purposes to have validity for other state law purposes). The current trend is for states to adopt more flexible rules as, for example, is the case in Colorado.

In Utah, however, disclaimers are governed by Utah Code § 75-2-801, which tracks the IRS requirements for making a valid disclaimer for tax purposes. This lengthy statute has a lot of rules governing the mechanics of how a disclaimer is done, rules about when you can be disqualified from making a disclaimer, and how to count the deadlines, but the primary portions of that statute governing the deadlines which establish the nine month deadline are subsection (2)(a) and (2)(b):

(2) The following rules govern the time when a disclaimer shall be filed or delivered:

(a) If the property or interest has devolved to the disclaimant under a testamentary instrument or by the laws of intestacy, the disclaimer shall be filed, if of a present interest, not later than nine months after the death of the deceased owner or deceased donee of a power of appointment and, if of a future interest, not later than nine months after the event determining that the taker of the property or interest is finally ascertained and his interest is indefeasibly vested. The disclaimer shall be filed in the district court of the county in which proceedings for the administration of the estate of the deceased owner or deceased donee of the power have been commenced. A copy of the disclaimer shall be delivered in person or mailed by registered or certified mail, return receipt requested, to any personal representative or other fiduciary of the decedent or donee of the power.

(b) If a property or interest has devolved to the disclaimant under a nontestamentary instrument or contract, the disclaimer shall be delivered or filed, if of a present interest, not later than nine months after the effective date of the nontestamentary instrument or contract and, if of a future interest, not later than nine months after the event determining that the taker of the property or interest is finally ascertained and his interest is indefeasibly vested. If the person entitled to disclaim does not know of the existence of the interest, the disclaimer shall be delivered or filed not later than nine months after the person learns of the existence of the interest. The effective date of a revocable instrument or contract is the date on which the maker no longer has power to revoke it or to transfer to the maker or another the entire legal and equitable ownership of the interest. The disclaimer or a copy thereof shall be delivered in person or mailed by registered or certified mail, return receipt requested, to the person who has legal title to or possession of the interest disclaimed.

Another Key Limitation On When A Disclaimer Can Be Made

In addition to these deadline requirements, under federal law and the law of every state, a disclaimer must be made before the person entitled to receive the gift or inheritance takes any action which is inconsistent with a disclaimer such as receiving an economic benefit from the property that the person making the disclaimer would like to disclaim.

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