Inheritance Disclaiming Question

Submitted by Josh Harmon on Thu, 2023-07-06 17:03

I have a question about disclaiming an inheritance. Our client inherited her husbands ESOP balance. She wants to give 50% to his biological children. He passed in October 22. If the ESOP balance has already been inherited is she able to disclaim the 50% post inheritance?



Submitted by David Mertz on Thu, 2023-07-06 17:58

  • If the ESOP shares have already been rolled over under the direction of the surviving spouse to an account maintained for the benefit of the surviving spouse or the shares have been distributed to the surviving spouse, that act probably constitutes acceptance of the interest which would eliminate the possibility of disclaiming, but that’s a question for the attorney who would be drafting the disclaimer.  The ESOP plan also needs to be asked if they will accept a disclaimer.
  • Even if the interest has not yet been accepted, it still might be too late to disclaim.  The deadline to disclaim is 9 months after date of death, which is fast approaching if it has not already passed.
  • The client cannot direct where the disclaimed portion will go.  The portion disclaimed by the surviving spouse will pass to beneficiaries as if the surviving spouse predeceased the decedent.
  • If the surviving spouse does not disclaim, the surviving spouse can take distributions and gift amounts to the children net of the incremental tax liability of the surviving spouse.

Submitted by Alan - IRA critic on Thu, 2023-07-06 19:02

In addition to the complex disclaimer consideration, if spouse passed post RBD there is also the year of death RMD requirement and distribution of that RMD would not eliminate a disclaimer (RR 2005-36). Other interrelated questions about this plan include sole spousal beneficiary issues (spouse still treated as the sole beneficiary if disclaimer is made), and NUA considerations if a qualified LSD is completed. LSD, RMDs, and disclaimers all have interrelated deadlines. If surviving spouse does not disclaim (or cannot due to missed deadline), utilizing NUA if the cost basis is low can reduce the tax owed by the spouse for distributions to be gifted and therefore increase the tax adjusted amount of any gifts.

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