Failure to make qualified disclaimer can be expensive.

• Author: Hudson, Boyd D.

A qualified disclaimer can be a way to provide a degree of flexibility in estate planning. A disclaimer is a written instrument that declines or renounces any transfer of an interest in property (whether testamentary or inter vivos) that a beneficiary would otherwise receive. Most often it is used when a beneficiary refuses to accept a bequest under a will or trust. For gift and estate tax purposes, if a person (disclaimant) makes a qualified disclaimer, the estate and gift tax apply as if the interest had never been transferred to such person (Sec. 2518(a)). The property passes to the next designated beneficiary as though the transferor had left it directly to him (Regs. Sec. 25.25181(b)).

Disclaimers can be useful when the recipient of the bequest already has a large estate and the effect of the disclaimer is to transfer the disclaimed property to a favored beneficiary (e.g., the disclaimant's children).

Certain requirements must be satisfied if the disclaimer is to qualify for Federal estate and gift tax purposes. Sec. 2518(b) states that a"qualified disclaimer" means an irrevocable and unqualified refusal by a person to accept an interest in property, but only if:

--such refusal is in writing;

--the writing is received by the transferor of the interest, his legal representative, or the holder of legal title to the interest not later than nine months after the date on which the transfer creating the interest in such person is made;

--the disclaimant has not received the interest or any of its benefits; and

--as a result of such refusal, the interest passes without any direction on the part of the disclaimant and passes either to the decedent's spouse or to a person other than the person making the disclaimer.

The most significant requirement is that there be a written instrument constituting an irrevocable and unqualified refusal on the part of the disclaimant to accept the property. This requirement was interpreted recently by the Service in Letter Ruling (TAM) 9640005.

Decedent (D) died in February 1994. His wife (S) predeceased D in December 1992. S's will provided that after certain cash bequests the residue was to pass directly to D. S's will also provided that if D disclaimed any part of the residue, the portion disclaimed was to pass to a Family Residuary Trust. D would be a beneficiary of the Residuary Trust during his lifetime, with the property to be distributed on his death to the child of D and S.

After S's death, D prepared...