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Saying no to an inheritance

There may be times that it is appropriate to look an estate gift horse in the mouth. Estate planning should include the advantages and downsides of inheritances and bequests.

An heir may want to disclaim an inheritance to give a helpful asset to another family member. For example, a younger relative who was just married may make better use of an inherited condominium. Or, an heir may be burdened with undesirable real estate that is expensive to keep and difficult to sell.

Other situations may involve a beneficiary who is being sued or has creditors who may claim the trust proceeds. A student beneficiary may lose their eligibility for financial aid, if they receive any inheritance.

Distribution of assets may also cause aggravation if it comes with stipulations on marriage, religion or education. Money placed in a second needs trust to pay for expenses for a relative may lose protection from nursing homes and other creditors.

An inheritance of certain assets, such as an IRA, may also have tax complications. Disclaiming this inheritance can allow more tax-deferred growth.

However, saying no may not be so simple. An original beneficiary cannot change or alter other named beneficiaries. When this occurs, the property passes to a contingent beneficiary like the situation where a primary beneficiary died.

Matters may be more complicated if there is no will or secondary beneficiary. Arizona law will determine who inherits or receives the property in these situations.

Federal tax law also poses obstacles. If a primary beneficiary does not meet the legal requirements for a qualified disclaimer to the inheritance, the property may be considered as an asset that is a taxable gift to the next person who is eligible to receive that property. And, these disclaimers cannot be withdrawn. An heir or beneficiary cannot try to reclaim the assets when there are financial or tax advantages.

An attorney can help draft and periodically review estate documents to assure that they meet the person's intent and help their family after the person's death. They may help assure that estate planning meets these contingencies and legal requirements.

Source: Daily Reckoning, "When to say 'no thanks' to free money," Nilus Mattive, April 3, 2018

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