What is a Qualified Disclaimer?

Adler & Adler, PLLC Team

A qualified disclaimer is an irrevocable and unqualified refusal to accept an interest in property. Because the system of wealth transfer taxation in the United States (i.e., the federal estate, gift, and generation-skipping transfer tax) operates to impose a tax on the privilege of transferring property, the punch-line about disclaimers, for purposes of those wealth transfer taxes, is that qualified disclaimers are not taxable transfers.

If a disclaimant of a lifetime transfer (a gift) or a death time transfer (a bequest in a will) makes a qualified disclaimer under federal tax law, the disclaimant is not considered to be the transferor of that property for federal wealth transfer tax purposes. However, a qualified disclaimer does not eliminate wealth transfer taxes. Wealth transfer taxes will still apply to the transfer of property as it passes from the original transferor to the person who actually receives the property as a result of the disclaimer.

Disclaimers are commonly used as a post-mortem estate planning tool to reduce or defer taxes or fund charitable bequests.

A disclaimer is essentially a refusal of a gift or bequest. For example, if father dies and leaves $100,000 to his son in his will and names his grandson as the successor beneficiary (in the event son is not living at the time of father’s death), a disclaimer of the $100,000 by son would result in the $100,000 passing to the next person entitled to the property, in this case, the grandson.

If a disclaimer is not “qualified”, it is treated as a taxable gift from the disclaimant to the person taking the property. A qualified disclaimer must be valid under state law and must meet all the requirements of Internal Revenue Code Section 2518. Among those requirements is that the disclaimer must be received by the transferor of the disclaimed interest, the transferor’s legal representative, or the holder of the title to the property to which the disclaimed interest relates within nine months of the creation of the interest (or within nine months of the disclaimant’s 21st birthday).

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