Disclaimers and private foundations.

• Author: Boffa, Alane L.

Recently, Letter Rulings 200518012 and 200519042 held that disclaimers were qualified, despite the fact that the disclaimant maintained a role with respect to private foundations that received the disclaimed property.

Background

A disclaimer occurs when a person entitled to inherit certain property decides to decline it. The property then passes to another beneficiary according to the will. Disclaimers are an important part of estate planning; Sec. 2518 provides that if a person makes a qualified disclaimer as to any interest in property, the disclaimed interest is treated as if it had never been transferred to the person making the qualified disclaimer, for purposes of the Federal estate, gift and generation-skipping transfer (GST) tax provisions. Disclaimers can be used for post-mortem planning, to qualify the estate for a charitable or marital deduction, or to allow use of unused GST tax exemptions.

Example: A's will leaves certain assets to his surviving spouse, B, and his residuary estate equally to his two children, C and D. If B made a qualified disclaimer of any of the property that she would otherwise receive, it would pass equally to C and D as part of the residue.

Qualified Disclaimers

To qualify under Sec. 2518(b), a disclaimer must be:

* Irrevocable and unqualified;

* In writing; and

* Received by the transferor of the interest or his or her legal representative no later than nine months after the date on which the transfer creating the interest in the person making the disclaimer is made, or the date on which the person making the disclaimer attains age 21.

Further, the person making the disclaimer cannot receive the interest or any of its benefits; and, as a result of the disclaimer, the interest must pass, without any direction on the disclaimant's part, to the decedent's spouse or to a person other than the disclaimant.

Because a disclaimer must meet all of the above requirements, it can be difficult to use effectively. If it is not qualified, it is disregarded; the disclaimant is then treated as having received the property and made a subsequent transfer (and potentially, as having made a gift). Many letter rulings are requested each year on disclaimers, as taxpayers want to ensure they meet Sec. 2518's requirements.

Donor-Advised Fund

Facts: In Letter Ruling 200518012, the decedent left tangible personal property to her seven surviving grand-children in equal shares. Her will indicated that if a beneficiary disclaimed any...