Recent rulings illustrate use of joint tenancy disclaimers in postmortem estate planning.

• Author: Henderson, Tracie K.

The IRS recently issued two letter rulings that confirm its new, liberalized position on disclaimers of a decedent's interest in certain jointly owned property. The Service's new position opens the door to postmortem estate planning in situations in which joint tenancies with right of survivorship or tenancies by the entirety would otherwise have undesirable estate tax consequences.

Joint tenancy

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The typical form of home ownership among married couples is a joint'tenancy with right of survivorship or, in some states, a tenancy by the entirety. In either case, each spouse owns an undivided interest in the property - and on the first spouse's death, the entire property automatically passes to the survivor. This survivorship feature makes joint tenancy one of the simplest ways of transferring an interest in property. In some situations, however, the surviving spouse's estate may pay a high price in transfer taxes for that simplicity. Although the unlimited marital deduction ensures that the home will pass to the survivor free of any transfer taxes, the property will be subject to estate tax in the survivor's estate. For estate planning purposes, it may make more sense to have the first spouse's interest pass to a nonmarital or family trust or to other persons. In such cases, the first spouse's estate will escape estate tax on that interest through use of the unified credit, while the survivor's estate will avoid estate tax on that interest because it is not part of the survivor's estate.

Occasionally, the surviving spouse will not be aware of the possible adverse estate tax consequences of a joint tenancy until after the first spouse's death. By executing a qualified disclaimer of the deceased spouse's interest in

the joint tenancy property, the interest will not pass to the survivor and, therefore, will not be part of the surviving spouse's estate. The survivor will retain only the one-half interest in the property that he held prior to the decedent's death.

Qualified disclaimers

Sec. 2518 allows a would-be beneficiary to disclaim a gift or bequest provided that - disclaimer is in writing; - the transferor (or his legal representative) receives the written disclaimer no later than (1) nine months after the date of the transfer that created the interest the would-be beneficiary is disclaiming, or (2) if later, the day on which the would-be beneficiary turns 21; - the would-be beneficiary has not received the interest or...