There are several primary legal reasons why a person will use a waiver of inheritance or estate. For example, the heir could be liable for federal and state taxes based on the estate's value; she may find maintaining property or other assets to be inconvenient; she’s currently in bankruptcy or a lawsuit; she may agree to a waiver to protect the assets from seizure from creditors; or she may want to provide her children with the assets without incurring any gift tax consequences.
Investopedia’s article, “How Inheritance and Estate Tax Waivers Work,” provides some tips to consider, when deciding on an inheritance or estate waiver release.
Waiver Form Language. The waiver, i.e. disclaimer, must have specific words to be considered complete and binding. The heir must state her name, along with the name of the deceased individual. A general waiver of all benefits as to the estate of the decedent is appropriate. However, if any specific items were personally designated to the heir, or if the heir has an entitlement to any items, a waiver should list the specific items being waived. The waiver also should state that the decision is being made freely and without coercion to be legally binding.
The Legal Process. Every state has its own laws that govern wills and estates. As a result, each state has a different set of rules relating to waiving an inheritance or estate. However, generally, the disclaimer must be a written document that is filed with the court having jurisdiction over the estate. The executor of the will must get a copy of the disclaimer. In order for the waiver to be valid, the heir can’t receive compensation or other benefits for agreeing to revoke rights for certain items.
Timing and Taxes. A waiver is typically due up to nine months after the decedent's death. If the deadline passes for filing, the heir must take possession of the distributed assets. Any federal and state estate or inheritance taxes are also due nine months after the date of death. The taxes are calculated based on the taxable estate value, and these taxes must be paid before assets are distributed to the beneficiaries.
Legal Consequences of Waiving Rights. After filing a waiver, the estate’s executor has complete responsibility for the distribution of assets. A waiver can’t direct that another person receives the waived assets. If no additional instructions are outlined in the will, the executor has the discretion to transfer the items to another individual, to an entity not listed in the will, or to a charitable cause. The probate court has to okay these types of transfers.
Remember that the primary guide to how a waiver works is your state's requirements, so you’ll want to work with a local estate planning attorney. Certain states require certain language or actions, depending on the relationship between the heir and the deceased.
One of the main goals of our law practice is to help families like yours plan for the safe, successful transfer of wealth to the next generation. Call our office today to schedule a time for us to sit down and talk about your estate plan, where we can identify the best strategies for you and your family to ensure your legacy of love and financial security. Our office is located in Santa Ana, CA but we serve all of California including Irvine, Orange, Tustin, Newport Beach, and Anaheim.
Reference: Investopedia (October 1, 2018) “How Inheritance and Estate Tax Waivers Work”