Rules Governing Disclaimers

In yesterday’s post, I described the consequences of disclaiming your entitlement to receive a retirement account left to you by a recently deceased person—a spouse, a parent, whatever. “Well,” you might be thinking, “this could be useful. How do I do one of those disclaimer things?” As might be expected, there are plenty of requirements to meet. Here is a summary of them.

1. The disclaimer has to be an unqualified refusal to accept the property. You can’t reserve the right to change your mind.
2. The disclaimer has to apply to either the entire property or to a fractional part of it. For example, if someone has named you beneficiary of an IRA, you can keep 75% of it and disclaim your right to 25% of it.
3. The disclaimer must be in writing.
4. The writing must be delivered to the transferor of the property. In the case of a retirement account, that means the trustee or custodian of the account.
5. The written disclaimer must be delivered no later than nine months after the decedent’s death (or nine months after you turn 21, if later).
6. You must not have accepted any benefit from the property. There’s some leeway here. In a magnanimous ruling the IRS said that if all you took from an IRA is the required minimum distribution for the year of the decedent’s death, it’s still not too late to disclaim the rest of the IRA. Nonetheless, this particular requirement can easily trip you up. It might mean, for example, that you had better not take control of the retirement account’s investments if you are later going to disclaim. Who knows?
7. As a result of the disclaimer, the property must pass to the ultimate recipient without any direction from you. That means you don’t get to say who gets it; that’s determined by the decedent (now, alas, gone to his reward) based on the way he wrote his Beneficiary Designation Form.
8. You cannot benefit from the disclaimed property. For example, if you are the primary beneficiary of your parent’s IRA, and the contingent beneficiary is a trust under which you are also a beneficiary, then the disclaimer won’t qualify. In order to make it work, you would have to disclaim your rights under the trust as well as disclaiming your rights under the IRA. This particular rule doesn’t apply to surviving spouses; but it applies to all other types of beneficiaries.
9. Your disclaimer has to meet all the requirements of your state’s laws governing disclaimers.

So those are the ground rules in a nutshell. Pretty tricky, huh? That’s why it’s important to get a competent knowledgeable lawyer involved whenever you venture into disclaimer world.