James R. Balmforth: Utah Probate Code Disclaimer

A “Disclaimer” means any writing which declines, refuses, renounces, or disclaims any interest that would otherwise be taken by a beneficiary. As part of the Utah Uniform Probate Code, the beneficiary of an interest in property may renounce the gift, either in part or in full. Note that the option to disclaim is only available to beneficiaries who have not acted in any way to indicate acceptance or ownership of the interest. The disclaimer must be in writing and include a description of the interest, a declaration of intent to disclaim all or a defined portion of the interest, and be signed by the disclaimant. File the disclaimer within nine months of the transfer (e.g., the death of the creator of the interest) with the district court of the county that has jurisdiction over proceedings regarding the estate of the deceased donor. In addition, deliver a copy of the disclaimer in person or send it by registered mail to the personal representative of the decedent’s estate. If the transfer is enacted by an instrument other than a will, deliver a copy of the disclaimer to the person who has legal title to or possession of the property.

If real property is involved, record a copy of the disclaimer in the office of the county recorder in the county in which the property or interest disclaimed is located. A disclaimer is irrevocable and binding for the disclaiming party and his or her creditors, so be sure to consult an attorney when in doubt about the drawbacks and benefits of disclaiming inherited property. If the disclaimed interest arises out of jointly-owned property, seek legal advice as well. Usually a disclaimer is made by giving timely written notice in proper form to the person who is in control of the inherited asset (using the word “inherited” in a broad non-technical sense) within the time allowed by statute. You cannot disclaim once you have taken actions consistent with ownership or you have waived the right to disclaim in writing. The theory behind this harsh rule is to prevent people from “having it both ways.” You either inherit something or you decline to accept the inheritance. Once you have taken any action that reveals intent to do on or the other of these things, you aren’t allowed to change your mind.

What is a Probate Disclaimer?

A probate disclaimer is a document that is signed by someone entitled to receive an inheritance disclaiming (giving up) that inheritance. When this is done the person who disclaims is treated as having predeceased (i.e. died before) the person who has just died and whose estate is being probated. There are a couple of important rules to remember when it comes to disclaimers:

• It must be irrevocable and unqualified (i.e. there can be no conditions set on the disclaimer);

• It must be in writing;

• The writing must be delivered to delivered to the Personal Representative within 9 months of the later of: (1) the date on which the transfer creating the interest in the disclaimant is made (i.e. date of death); or (2) the day on which the disclaimant turns 21 years of age.

• The disclaimant must not have accepted the interest disclaimed or any of its benefits; and

• The interest disclaimed must pass either to the spouse of the decedent or to a person other than the disclaimant without any direction on the part of the person making the disclaimer.

There is ONE important thing to remember before you disclaim any assets. Make sure you know who is next in line for the assets if you disclaim. You don’t get to choose where the assets go, so it’s important to know all of the consequences of disclaiming before you do so.

Disclaiming an Inheritance – How to Do It

• A person in ill health and with an estate already likely to be taxed heavily who does not need the inheritance realizes that the person next in line in the Will or Trust can use the money and will not likely face large estate taxes in the near future.

• A person who wishes to claim a community property interest in a property is given twenty percent of it in the Will and, instead, will insist on taking fifty percent of the property due to its community property nature.

• A person facing personal bankruptcy, thus likely to lose the inheritance in any event, wishes the money to pass directly to his or her children, next in line in the Trust, and never to vest in him or her.

Procedure for Creating a Disclaimer

• Form Requirements: The disclaimer shall be in writing, and shall be signed by the disclaimant, and shall: Identify the creator of the interest, describe the interest to be disclaimed, State the disclaimer and the extent of the disclaimer.

• Time Requirements: In order to be effective, a disclaimer must be filed within a reasonable time after the person able to disclaim acquires knowledge of the interest. In the case of any of the following interest, a disclaimer is conclusively presumed to have been filed within a reasonable time if it is filed within nine months after the death of the creator of the interest or within nine months after the interest becomes indefeasibly vested, whichever occurs later: An interest created under a will, An interest created by interstate succession, An interest created pursuant to the exercise or non-exercise of a testamentary power or appointment, An interest created by surviving the death of a depositor of a Totten trust account or P.O.D. account, An interest created under a life insurance of annuity contract, An interest created by surviving the death of another joint contract, An interest created under am employee benefit plan, An interest created under an individual retirement account, annuity or bond.

• In the case of an interest created by a living trust, an interest created by the exercise of a presently exercisable power of appointment, an outright inter vivo gift, a power of appointment, or an interest created or increased by succession to a disclaimed interest, a disclaimer is conclusively presumed to have been filed within a reasonable time if it is filed within nine months after whichever of the following times occur latest: the time of the creation of the trust, the exercise of the power of appointment, the making of the gift, the creation of the power of appointment, or the disclaimer of the disclaimed property. The time of the first knowledge of the interest is acquired by the person able to disclaim. The time the interest becomes indefeasibly vested, a disclaimer is conclusively presumed to have been filed within a reasonable time if it is filed within nine months after whichever of the following times occur later: Nine months after the time the interest becomes an estate in possession. A disclaimer, when effective, is irrevocable and binding upon the beneficiary and all persons claiming by, through, or under the beneficiary, including creditors of the beneficiary. Keep this in mind: one cannot change one’s mind once the disclaimer is achieved and once it is achieved, the effect is usually equivalent to the person who otherwise would have received the asset never having received the asset in any manner. Whatever the purpose, it is absolutely vital for a person considering use of such a tool to both act with alacrity and seek experienced legal and tax advice before disclaiming any interest. Since they are irrevocable, this can be a decision that could very well alter one’s well being significantly and should only be undertaken with care and appropriate input.

How Do You Disclaim A Gift?

If a person chooses not to accept an inheritance, they are said to be disclaiming it. However, the disclaimer would have to be made after the death; if it was made before the testator’s death, it is not effective. If a gift is left to more than one person as joint tenants, a disclaimer can only be made by all of them acting together. A person disclaiming a gift cannot decide who receives the gift instead. If they want the gift to go to a specific alternative person, this should be done by a deed of variation. When a gift is disclaimed, the estate is distributed as if the will had not included the gift at all. A disclaimer cannot be revoked if any other person has acted on the basis of it: once a gift is disclaimed, the beneficiary cannot change their mind, except in very specific circumstances. Once a gift has been accepted, it cannot later be disclaimed. A disclaimer should be formal and made in writing, and the best way of doing this is by a deed of disclaimer. It will simply say, in legal language, that the beneficiary disclaims the gift – i.e. has decided not to accept it. A disclaimer made by deed cannot be revoked. As a deed, it will need to be signed by two competent witnesses. Good practice is that the witnesses should not be people mentioned in the will, or members of the family. A transfer of property from a donor to the receive is a gift, whether the transfer occurs during the donor’s lifetime (inter vivo gift) or after the donor’s death. There are 3 recognized elements to any gift:

• the intention to give a gift,

• its delivery,

• acceptance.

A disclaimer is a refusal to accept a gift of inheritance. When an heir or beneficiary disclaims an inheritance, it has the legal effect of the disclaimant predeceasing the decedent or before the property is distributed; the title to the property never passes to the disclaimant. There are 2 primary benefits to a disclaimer: to avoid or reduce taxes and to avoid the claims of creditors. If an heir first took title to the property then gave it to another, the heir may have to claim the inheritance as income and may also be liable for gift taxes after giving the inheritance to someone else. Furthermore, if the next in line after the disclaimant earns less income than the disclaimant and the property earns an income, then income taxes will be reduced for the recipient of the disclaimed property. Hence, disclaimers may reduce tax liability for both parties. Under common law, a disclaimer only applies to probate property, but the modern trend is to extend disclaimers to non-probate property as well. To avoid gift tax liability, the Internal Revenue Service also requires that the disclaimer be a qualified disclaimer, which must satisfy all the following conditions:

• a refusal to accept the disclaimed property by the disclaimant must be: irrevocable and unqualified; be in writing:

• the disclaimant has never accepted the disclaimed property or any of its benefits, and

• The disclaimer causes the disclaimed property to pass—without any direction from the disclaimant—to someone else.

• Without a disclaimer, an heir’s creditors could attach the estate property after a default by the heir, and if the heir transferred the property before the creditors attached it, the creditors could have the transfer reversed under fraudulent conveyance laws.

Because the disclaimant never takes legal title to the property, the disclaimant incurs no gift tax liability nor can most creditors of the disclaimant reach the property. However, there is an exception when the state or federal government is the creditor, either for taxes or for reimbursement for Medicaid, which is a state-federal cooperative program providing payment for required medical services for poor people. In Troy v. Hart, a Medicaid recipient disclaimed his inheritance, allowing it to pass to his sisters, so that he could continue to qualify for Medicaid. However, the court ruled that it was against public policy to allow such a disclaimer, so it created a constructive trust so that the state can file any claims for reimbursement of Medicaid benefits. A minority of states do not allow an insolvent debtor to disclaim property. Under federal bankruptcy law, a disclaimer is usually effective before the disclaimant files for bankruptcy, but after the filing of bankruptcy and within 180 days of the filing, any inherited property or rights thereof or any other received benefit because of the death of another, such as the proceeds of life insurance, belongs to the bankruptcy estate and not to the heir, and, thus, cannot be disclaimed.

Disclaimers and Variations

A beneficiary of an estate, whether by Will or the laws of intestacy is perfectly within their rights to reject their inheritance? Beneficiaries may wish to vary dispositions of property following death in order to redirect benefits to other family members who are more in need or less well provided for and to save tax. In order to do this there are three options:

• By Gift: A gift by a beneficiary has taxed consequences if the item has increased in value since the date of death and if the beneficiary dies within 7 years of making the gift.

• By Disclaimer: A Disclaimer is a simple deed in which the beneficiary gives up all rights to their inheritance. The inheritance then passes to the next person entitled under the will or on intestacy. With a disclaimer the original beneficiary has no control over who receives the asset.

• By Variation: A Variation is often preferred to a disclaimer because it allows the original beneficiary to choose who inherits.
Disclaimers and Variations are more tax efficient provided they contain a statement regarding the tax consequences of their decision. However Variations can cause problems for income tax which disclaimers can avoid so where possible a disclaimer by a parent is favourable to a variation where children minor are the next beneficiaries in line to inherit. It is possible that the variation can be drafted so that it doesn’t affect the Capital Gains Tax position of the original beneficiary. Here it would be drafted so that it affected the Inheritance tax position only. This means it is treated as a gift by the deceased for inheritance tax purposes but a gift by the beneficiary for Capital gains tax. This can be beneficial in circumstances where an asset has increased hugely in value since the date of death but the original beneficiary has brought forward losses, which would negate the gain here. It would be preferable to use this rather than force the original beneficiary to eventually pay more capital gains tax when they eventually dispose of it given that they would inherit at the value at the date of death otherwise.

Reasons for Disclaiming Property or Interest

Property may be disclaimed for several reasons: because it is unwanted, because it carries heavy liabilities, because of tax reasons or because the intended beneficiary wants to pass the property to another beneficiary. A disclaiming trust may be used as part of estate planning; for example, a married couple may set up a disclaiming trust so that the first spouse to die can pass on his or her assets to his or her originally selected beneficiaries, and not to the new spouse of the surviving spouse, while still providing for the livelihood of the surviving spouse. An heir may disclaim an inheritance in order to pass the bequest on to his or her children, or because he or she does not want the responsibilities of caring for the property, or to avoid paying creditors’ claims on an estate.

Utah Probate Code Disclaimer Lawyer

When you need legal help with estate administration, estate planning, probate, or a disclaimer, please call Ascent Law LLC for your free consultation (801) 676-5506. We want to help you.