Does It Make Sense to Reject an Inheritance?

Does It Make Sense to Reject an Inheritance? Episode 346 – Does it ever make sense to reject an inheritance? On some occasions, a “qualified disclaimer” can give you a chance to do the right thing, or to avoid a major headache. More SML Planning Minute Podcast Episodes Transcript of Podcast Episode 346 Hello, this is Bill Rainaldi, with another edition of Security Mutual’s SML Planning Minute. In today’s episode, does it make sense to reject an inheritance? So, your Uncle Joe died a few weeks ago, and to your surprise, he’s left some of his assets to you. Great news, yes? Well, most of the time, but not always. There are occasions when someone might choose to reject an inheritance through what’s known as a disclaimer. Sure, it sounds crazy. Why on Earth would anybody decline to receive extra assets? Certainly, it’s something you’d rarely see for someone who truly needs the money. And while it’s done most often by wealthier people, anyone can use a disclaimer. It can be used as a tool to make last minute changes to an estate plan, even after someone has died. Here are a few specific circumstances where it might make sense:[1] The person who would inherit after you disclaim, such as a child, a sibling or a charity, might need the money more than you do. The inherited assets would increase the size of your estate, which could result in tax planning issues later on. You have special income tax considerations, such as trying to avoid Required Minimum Distributions for an inherited IRA, where you have to withdraw all assets from the plan within 10 years and doing so could move you into a higher tax bracket. You recognize that disclaiming the inheritance would better reflect the true intent of the deceased person. Receiving the inheritance might jeopardize your eligibility for federal programs, such as Supplemental Security Income (SSI) or Medicaid. You don’t need the money yourself and would prefer to see someone else benefit from it. But keep in mind that once you disclaim an asset, you cannot change your mind.  It is final and irrevocable. There are other, potentially less altruistic reasons as well. Let’s say the deceased person leaves their home to you, which needs major repairs or has a potential environmental issue. In some of these cases, your best choice may be to disclaim.[2] Financial instability, divorce, and litigation are other reasons it could be problematic to inherit assets.[3] Whatever the reason, if you wish to disclaim an asset you’re scheduled to receive, you need to make sure you fully understand the effect of your disclaimer and follow the applicable state and federal rules. You will likely need an attorney to help you file a “qualified disclaimer,” which is a written document that clearly states your refusal to accept the property. To be considered qualified for federal tax purposes, there are four conditions that must be met:[4] The disclaimer must be made in writing. Also, your state might require that the disclaimer be notarized or witnessed and filed with the probate court. The disclaimer must generally be made within nine months of the date of death. There is an exception though if the beneficiary is under age 21. In that case, the deadline is nine months after the beneficiary reaches age 21. You cannot receive any benefits from the proceeds of the assets you’re refusing to accept. Finally, you cannot have any say in what happens next to the assets in question. Where do the assets go? The assets will normally be distributed as if you had predeceased the grantor. For a non-probate asset such as a life insurance benefit or a retirement account, they would typically pass according to the terms of the governing contract, while probate assets would pass according to jurisdictional testate or intestate succession laws.[5] It’s important that you understand exactly who would receive the disclaimed assets before you reach any decision about a disclaimer. Notably, you don’t always have to disclaim the entire inheritance. You can choose to accept only a portion of it. This is known as a “partial disclaimer.”[6] It’s safe to say that a disclaimer strategy is rarely used, especially outside of very high-income people. But if the circumstances are right, it could be a chance for you to meet some higher goal, or to avoid some headaches you’d rather not deal with. [1] Lake, Rebecca. “How to Disclaim an Inheritance (And Why You Would).” Smartasset.com. https://smartasset.com/financial-advisor/disclaim-inheritance (accessed June 26, 2025). [2] Id. [3] Manganaro, John. “Reject an Inheritance? Not Always a Bad Idea.” Thinkadvisor.com. https://www.thinkadvisor.com/2025/06/09/reject-an-inheritance-not-always-a-bad-idea/ (accessed June 25, 2025). [4] Rodriguez, Jeremy. “Using the Disclaimer as an Estate Planning Tool.” IRAHelp.com. https://irahelp.com/slottreport/using-disclaimer-estate-planning-tool/ (accessed June 26, 2025). [5] Manganaro, John. “Reject an Inheritance? Not Always a Bad Idea.” Thinkadvisor.com. https://www.thinkadvisor.com/2025/06/09/reject-an-inheritance-not-always-a-bad-idea/ (accessed June 25, 2025). [6] Id. More SML Planning Minute Podcast Episodes This podcast is brought to you by Security Mutual Life Insurance Company of New York, The Company That Cares®. The content provided is intended for educational and informational purposes only. Information is provided in good faith. However, the company makes no representation or warranty of any kind regarding the accuracy, reliability, or completeness of the information.  The information presented is designed to provide general information regarding the subject matter covered. It is not to serve at legal, tax or other financial advice related to individual situations, because each person’s legal, tax and financial situation is different. Specific advice needs to be tailored to your situation. Therefore, please consult with your own attorney, tax professional and/or other advisors regarding your specific situation. To help reach your goals, you need a skilled professional by your side. Contact your local Security Mutual life insurance advisor today. As part of the planning process, he or she will coordinate with your other advisors as needed to help you achieve your financial goals and objectives. For more information, visit us at SMLNY.com/SMLPodcast. If you’ve enjoyed this podcast, tell your friends about it. And be sure to give us a five-star review. And check us out on LinkedIn, YouTube and X (formally Twitter). Thanks for listening, and we’ll talk to you next time. Tax laws are complex and subject to change. The information presented is based on current interpretation of the laws. Neither Security Mutual nor its agents are permitted to provide tax or legal advice. The applicability of any strategy discussed is dependent upon the particular facts and circumstances. Results may vary, and products and services discussed may not be  appropriate for all situations. Each person’s needs, objectives and financial circumstances are different, and must be reviewed and analyzed independently. We encourage individuals to seek personalized advice from a qualified Security Mutual life insurance advisor regarding their personal needs, objectives, and financial circumstances. Insurance products are issued by Security Mutual Life Insurance Company of New York, Binghamton, New York. 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