Disclaimers
In probate and estate administration, a person has the right to “disclaim” or refuse part or all of their inheritance. A disclaimer is a document whereby a beneficiary of a probate estate (I.e. an heir of inheritance) relinquishes or refuses their rights, title, and interests in the probate estate.
Before we go any further, I do want to distinguish between a disclaimer and a renunciation. These two terms may sometimes be used interchangeably when they are distinctly unique from one another. I discuss renunciations in another blog post in greater detail, but for this discussion, there are several reasons someone may choose to disclaim in probate.
For instance, inheritance may have an adverse effect on someone’s ability to qualify for Social Security. Additionally, Medicaid has a 60 month lookback period (the 5-year clawback) for which inheritance is counted as income in the month it is received. Therefore, accepting your inheritance, while you may be entitled to it by right, could be short-term money in your pocket that jeopardizes your long-term estate and elder care planning. Alternatively, some people simply do not want inheritance or would rather someone else receives it in their stead.
It is important to ensure that you have a properly drawn disclaimer that specifies the extent to which you wish to disclaim. There are State and Federal statutory requirements for disclaiming estate assets that, if not adhered, could result in their rejection before the Estate and Inheritance Tax Branch of the New Jersey Division of Taxation. Likewise, it could have substantial effects for those who had or are trying to qualify for Social Security, Medicaid/Medicare, filing for bankruptcy, and more. To avoid such disastrous results (such as losing your SSI), contact a social security or probate attorney.
While New Jersey no longer imposes an estate tax (also sometimes referred to as a “death tax”) for persons dying on or after January 1, 2018, that is not the case if the decedent passed prior to that date. Estate tax returns must be filed, along with inheritance tax returns, within a statutory timeframe or else the estate could be liable for a 10% penalty. Furthermore, New Jersey is one of a handful of states that does impose an inheritance tax. These taxes are levied on probate estates, usually based upon the apportionment or residuary clause in a will. If there is no will, the default is that the taxes are payable from the residuary of the probate estate. Many wills tend to make the residuary responsible for taxes, meaning gifts subject to the inheritance tax are not payable from that gift, but the residuary. This could cause significant problems for an estate depending upon who is in the class of beneficiaries and what else was left in the gift. I have seen children have to bear significant estate taxes that spring from other gifts to friends and cousins.
Inheritance taxes are the topic of another blog, but to quickly summarize, spouses and lineal descendants are not subject to the tax. There are four classes: A, C, D, and E (Class “B” beneficiaries were eliminated in 1963). Class “D” beneficiaries are everyone not in Class “A” or “C”. Class “E” beneficiaries are, over-generalizing, qualifying non-profits, charities, and the State of New Jersey. Class “C” and “D” beneficiaries of a probate estate make that probate estate liable for filing an inheritance tax return - even if the amount is within the exemption and disclaimers are properly filed. It is imperative that taxes are filed as soon as practicable as there is a 10% per annum penalty that begins accruing. This accrual starts after a statutory period.
Therefore, it is critical regardless if you are looking to protect your long-term estate and elder care planning or simply looking for someone else to take the property, that you consider executing a disclaimer. You can email me at Ranalli@ranalli-law.com. Your rights and privacy are 100% protected. We never sell or share your information. No one wants spam email and I respect your right to privacy. I am here to help you.
