Can You Refuse An Inheritance?
February 18th, 2022
Suddenly coming into money you didn’t expect isn’t always a good thing. While most beneficiaries are happy to receive an inheritance from a loved one, sometimes that inheritance can create problems rather than solve them. This could leave you wondering whether you can refuse an inheritance, and what happens when you do.
Can a Beneficiary Refuse an Inheritance?
The short answer to whether a beneficiary can refuse an inheritance is yes.
A beneficiary in a Will or trust, or an intestate heir under Florida state law can choose to refuse all or part of their inheritance. This is called a “disclaimer.” To be considered valid by the Florida Probate Court and the IRS, an disclaimer must be:
- In writing
- Entered into prior to claiming any part of your inheritance
- Clear about what interest is being disclaimed
- Specific about any partial disclaimer, expressing it as a fraction, percentage, money amount, period of time, or other way of calculating the amount
- Without any discretion about how the assets will be distributed
- Signed by the beneficiary and witnessed
- Filed with the probate court within 9 months of the grantor’s death (or after a minor reaches age 21)
What Happens After a Beneficiary Refuses Inheritance
Once you refuse an inheritance you lose all control over who receives it in your place. A grantor’s Will generally includes contingent beneficiaries — people who should receive assets if any of the primary beneficiaries cannot receive the money. The Will may also include a “residuary clause” which will name a person, class of people (like “my children”), or charity that should receive anything left over after the specific gifts have been given.
After a beneficiary refuses inheritance, Florida law treats that person as if they died immediately before they had the right to receive the inheritance. Whatever assets they disclaimed will then pass to the next contingent beneficiary in the list, or get included in the residuary.
If your family member died without a valid Will, all their assets will be passed down according to Florida state laws regarding “intestacy.” If you refuse your inheritance, those same laws will dictate who receives your share (most often this will be your children, siblings, or cousins). However, in either case, if the law says that your descendants would receive your disclaimed interest, only your then-living descendants will count.
Why You Might Disclaim an Inheritance
While most beneficiaries will be happy to receive inheritances, sometimes those assets can create problems for the beneficiaries or other members of the family. In these cases, it may be wise to refuse an inheritance:
To Shield Inherited Assets from Creditors
When a beneficiary comes into an inheritance it is immediately available to creditors seeking to collect on judgments, tax liens, and other debts. A beneficiary facing substantial debt may choose to disclaim their inheritance and allow it to pass to their children, siblings or cousins, rather than their creditors.
To Correct an Error or Omission
Sometimes grantors don’t update their estate plan, and new grandchildren, nieces or nephews, or children-in-law are left out of a Will. In other cases, a parent or grandparent may lend a beneficiary money “against their inheritance.” If that is not reflected in the estate plan, the beneficiary in question might receive more than anyone intended. When that happens, the beneficiary receiving the unintended windfall can partially disclaim their inheritance to the extent needed to correct the error, and the family can enter into a settlement agreement, correcting the error.
To Keep from Assuming the Mortgage on a House
Inheriting a house isn’t the same as other assets. If you inherit a house with a mortgage, it may be up to you to pay that liability off (if you want to keep the home). If you can’t take on those mortgage payments or pay off the balance with other inherited assets, it may be wise to refuse the inheritance and allow it to pass to another beneficiary in a better financial position.
To Protect Eligibility for Means-Tested Government Benefits
If a child or disabled adult depends on government benefits like Medicaid for their living expenses, suddenly inheriting even a relatively small amount can put those benefits at risk. Many of those benefits are “means-tested,” so individuals with too many assets may have their benefits cut off. If the assets to be inherited don’t outweigh those benefits, it may be wise for the person with the disability (or their guardian) to refuse the inheritance and keep their benefits.
To Avoid or Reduce Gift Taxes and Future Estate Taxes
Receiving a large inheritance can also create tax consequences. An inheritance may push your estate over the threshold for estate taxes on your own estate, or push you into a higher tax bracket on your annual tax return. In other cases, you may simply prefer that the next contingent beneficiary receive the money. Disclaiming your inheritance can allow them to take possession without either of you having to pay the gift taxes that would otherwise apply if you received the money first.
If you are considering refusing inheritance based on tax concerns, it is wise to speak with a probate attorney with extensive knowledge of the relevant tax laws. Attorney McCabe Harrison has an advanced law degree (L.L.M.) in tax, and can help you and your family members weigh the costs of any inheritance or disclaimer.
Get Help Lawfully Disclaiming Assets
A disclaimer of inheritance shouldn’t be done lightly or at the last minute. Once entered, a disclaimer of inheritance is final and cannot be revoked. You should carefully review your financial situation with an experienced estate administration attorney to determine if refusing an inheritance is the right choice for you and your family. At Harrison Estate Law, P.A., our estate and probate team can help consider your options and prepare a valid disclaimer of inheritance to protect your interests and your family. Contact us here or call 352-559-9828 to get help today.