Disclaimers are an incredible tool to be used in California estate planning, trust and probate law. Typically they are used after death in probate and trust administration settings. In some cases people call it “after death estate planning.” In any event it is a very powerful tool that not enough California attorneys know about. Below are my notes from my 2008 NBI seminar I presented on probate in California. As always contact me directly with questions or visit our website for more info at www.californiaprobate.info
- A disclaimer is a procedure whereby a beneficiary (including an estate or trust) may chose to give up a right to an asset by signing a written document so stating. Disclaimers are sometimes written into the estate plan (such as a disclaimer trust) and other times are used after death to change an estate plan after death.
- A common example of a disclaimer is to reduce the taxable estate of a beneficiary. Disclaiming, or renouncing one’s rights to the property, will cause the property (or at least a portion of it) to be taxed in the decedent’s estate rather than the disclaiming parties estate.
- A disclaimer may be made by the beneficiary or, if the beneficiary has a conservator, by the conservator by obtaining an order in the conservatorship under the substituted judgment rules. Similarly a disclaimer on behalf of a minor or deceased person would be with Court order.
- A disclaimer can be a whole or partial interest in just about any asset or power. That is, there are cases where the specific disclaiming of a power written into a will or trust can correct an error in drafting or change in law or facts. The list of interests includes, but is not limited to the following at PC 267:
i) by intestate succession;
ii) under a will;
iii) under a trust;
iv) by succession to a disclaimed interest;
v) by virtue of an election to take against a will;
vi) by creation of a power of appointment;
vii) by exercise or nonexercise of a power of appointment;
viii) by an inter vivos gift, whether outright or in trust;
ix) by surviving the death of a depositor of a Totten trust account or POD account;
x) under an insurance or annuity contract;
xi) by surviving the death of another joint tenant;
xii) under an employee benefit plan;
xiii) under an individual retirement account (IRA), annuity or bond;
xiv) any other interest created by any testamentary or inter vivos instrument or by operation of law;
- There are specific requirements which must be followed for the disclaimer to be effective. The basic requirements for a disclaimer are:
i) in writing;
ii) signed by the disclaimant;
iii) identify the creator of the interest;
iv) describe the interest to be disclaimed;
v) state the disclaimer and the extent of the disclaimer;
vi) must be filed within a “reasonable time;”
- The disclaimer must be filed within a reasonable time after the person able to disclaim acquires knowledge of the interest. PC 279(b) provides that, for certain specified interests, a disclaimer is conclusively presumed to be filed within a reasonable time if it is filed within nine months after the decedent’s death or within nine months after the interest becomes fully vested.
- If the disclaimer is not filed within nine months after the decedent’s death or within nine months after the interest becomes fully vested, the disclaimant has the burden of establishing that the disclaimer was filed within a reasonable time after the disclaimant acquired knowledge of the interest.
- The disclaimer must be filed in the Superior Court in the county in which the estate of the decedent is administered, with the trustee, PR, other fiduciary, or person responsible for distributing the interest to the beneficiary, with any other person having custody or possession of or legal title to the interest, or with the creator of the interest. (PC 280)
- If the disclaimer affects real property or an obligation secured by real property, the disclaimer should be notarized and recorded in the county in which the property is located.
- An effective disclaimer is irrevocable and binding upon the beneficiary and all persons claiming by, through, or under the beneficiary, including creditors of the beneficiary. (PC 281)
- The disclaimed interest passes in accordance with the provisions of PC 282, which provides:
“(a) Unless the creator of the interest provides for a specific disposition of the interest in the event of a disclaimer, the interest disclaimed shall descend, go, be distributed, or continue to be held (1) as to a present interest, as if the disclaimant had predeceased the creator of the interest or (2) as to a future interest, as if the disclaimant had died before the event determining that the taker of the interest had become finally ascertained and the taker’s interest indefeasibly vested. A disclaimer relates back for all purposes to the date of the death of the creator of the disclaimed interest or the determinative event, as the case may be.
(b) Notwithstanding subdivision (a), where the disclaimer is filed on or after January 1, 1985:
(1) The beneficiary is not treated as having predeceased the decedent for the purpose of determining the generation at which the division of the estate is to be made under Part 6 (commencing with Section 240) or other provision of a will, trust, or other instrument.
(2) The beneficiary of a disclaimed interest is not treated as having predeceased the decedent for the purpose of applying subdivision (d) of Section 6409 or subdivision (b) of Section 6410.
- A disclaimer is ineffective if the beneficiary has accepted the interest sought to be disclaimed. PC 285 provides that an acceptance occurs if:
(a) A disclaimer may not be made after the beneficiary has accepted the interest sought to be disclaimed.
(b) For the purpose of this section, a beneficiary has accepted an interest if any of the following occurs before a disclaimer is filed with respect to that interest:
(1) The beneficiary, or someone acting on behalf of the beneficiary, makes a voluntary assignment, conveyance, encumbrance, pledge, or transfer of the interest or part thereof, or contracts to do so; provided, however, that a beneficiary will not have accepted an interest if the beneficiary makes a gratuitous conveyance or transfer of the beneficiary’s entire interest in property to the person or persons who would have received the property had the beneficiary made an otherwise qualified disclaimer pursuant to this part.
(2) The beneficiary, or someone acting on behalf of the beneficiary, executes a written waiver under Section 284 of the right to disclaim the interest.
(3) The beneficiary, or someone acting on behalf of the beneficiary, accepts the interest or part thereof or benefit thereunder.
(4) The interest or part thereof is sold at a judicial sale.
(c) An acceptance does not preclude a beneficiary from thereafter disclaiming all or part of an interest if both of the following requirements are met:
(1) The beneficiary became entitled to the interest because another person disclaimed an interest.
(2) The beneficiary or other person acting on behalf of the beneficiary at the time of the acceptance had no knowledge of the interest to which the beneficiary so became entitled.
(d) The acceptance by a joint tenant of the joint tenancy interest created when the joint tenancy is created is not an acceptance by the joint tenant of the interest created when the joint tenant survives the death of another joint tenant.
- A disclaimer must be a “qualified disclaimer,” as defined in the Internal Revenue Code (IRC) in order to avoid negative estate, gift, or generation-skipping transfer taxes. The time limits required by the IRC for a qualified disclaimer supersede the time period set forth by state law. To be a “qualified disclaimer” under the IRS, the disclaimer must meet the following additional requirements:
- It must be an irrevocable and unqualified refusal to accept an interest in property.
- The written refusal must be received by the transferor, his legal representative, or holder of legal title no more than nine months after the later of (1) the day on which the transfer creating the interest is made; or (2) the day on which the person making the disclaimer reaches age 21. A disclaimer of an interest created by a decedent’s will must be made within nine months of the date of the decedent’s death, not within nine months after the will was admitted to probate.
- The person making the disclaimer must not have accepted the interest or any of its benefits prior to the disclaimer.
- The interest must pass to a person other than the person making the disclaimer as a result of the refusal to accept the property. A surviving spouse may, under this rule, disclaim an interest that, as a result and without direction on his or her part passes to a trust in which the surviving spouse has an interest (i.e. a “disclaimer trust.”).
PRACTICE POINTER: Try to complete disclaimers within nine months of death. Try to get notarized to help establish when it was done if it was not a disclaimer that needs to be filed in the Court. If you are meeting with surviving spouse who has a “disclaimer trust” make sure you advise in writing about doing the disclaimer within 9 months!