6 Reasons to Reject an Inheritance (Episode #278)

0:29 Well, good afternoon, Michiganders. It is Tuesday, April eighteenth, twenty twenty three, and a brief shout out to my brother Mark. Happy birthday, Mark. I hope that you have an awesome day in Colorado. Hopefully springtime is coming your way as well. But this, of course is Tuesday with Tom, Michigan's only weekly Internet show where we do answer your questions about a state planning and a state settlement in Michigan, and we don't send you a bit. I'm your host, Tom Doyle, a state planning attorney, lifelong Michigan resident, an ambassador for all things good in this great state of Michigan. Welcome, Welcome to today's program. Well, if you listen to last week's episode, you know I talked about how you can reject and inheritance.

1:22 So perhaps you're supposed to receive an inheritance treas company, but you don't want it for one reason. Another, I invite you to listen to last week's episode where I talked about how you would do that using what is called a disclaimer. But after listening and again re listening to the show after it was finished last week, at dawned on me that I actually had a previous episode in which I talked about six reasons why you might want to reject that inheritance. So as a follow up till last week, I'm simply going to replay that section of that episode where I talk about six reasons to reject an inheritance. But before we do that, just a reminder that a man and I would be honored to have the opportunity to help you protect your loved ones by putting together your state plan or amending a current plan that you already have, or perhaps assisting you in settling a loved ones estate. All of the information on how you can schedule an appointment with this how we can help you is available at the website doilapc dot com. There you're also going to find information on how to order individual legal documents. Maybe all you need is a certificate of trust or a new document of some sort. Check out the Legal Store where you have the ability to order individual documents that can be delivered to

2:53 you through the Internet. But having said that, here is my previous program in which I discussed six reasons to reject and inheritance. Today's show, let's talk about six reasons to reject and inheritance. But please remember what I'm about to discuss during the program is, as always for educational purposes only. It is not intended to be legal advice. As always, you need to work with your attorney to determine what is appropriate for you and your estate plan.

3:57 Six reasons to reject in inheritance. I know for many of you out there listening right now, you might say to yourself, geez, why would I ever even consider rejecting an inheritance? If somebody leaves me, perhaps something under their will or under a trust, or maybe I'm a beneficiary on a bank account or life insurance policy or retirement plan where I'm going to receive those assets when the person dies, why would I ever consider not wanting to receive that. Well, today, today we're going to talk about six reasons to reject an inheritance, and reason number one. In some cases, and again it's going to depend upon the circumstances that you are dealing with, but in some cases it might actually be a smart tax move to reject an inherance. And let me tell you scenario that I had with a client. Her husband had died, he had a very sizable IRA and his wife was the beneficiary on the IRA. The alternate beneficiaries on the IRA, that is, if his wife didn't survive him, were his four adult children. When he died and before his wife filed the paperwork to receive the proceeds, she met with me

5:33 and we discussed with her her own estate plan, discussed with her settling her husband's estate. And during that conversation, obviously we talked about the sizeable IRA that she was about to inherit from her husband. Well, when we analyzed it if first, I asked her, so do you need the money? Well, no, she did not. She had a very sizeable estate on her own. In fact, when this occurred, her estate was large enough on its own that she had a federal estate tax problem. Her estate was larger than the federal estate tax exemption, so she had a significant estate, so she didn't need the estate from her husband. I esd her, so, if you do receive this IRA from your husband, what are you going to do with it? And she advised me that her plan was, I'm just going to give it to my kids. I'm just going to give it to my kids. Whether I'm going to give it to them as part of my estate Plann or I'm going to give it to them now I'm never going to use the money. Well, when we analyzed it, the problem that she had if she received the IRA is it was simply going to increase the size of her estate when she died, essentially meaning she would have had a federal estate tax bill due at the time of her death. Or if she

7:06 received the IRA and decided to give it to her children now, because the Federalist State and gift tax is a unified tax and they both worked together, she in fact was going to incur a gift tax if she turned around and gave the proceeds to her children during her lifetime. Again, options she receives the IRA, holds onto it till death, she's going to have a higher Federalist state tax built. She receives the assets. Option two, and she gives it to her kids, she was going to incur a gift tax.

7:49 Option three, which made sense, and it was something that I had to recommend to her considering is to reject it, to say I know I don't want the IRA. Then what happens when she rejects the IRA, which is what we call a disclaimer, that's the legal document that you used to do that. When she disclaimed the IRA, then what happened? It went to the alternate beneficiaries who were the alternate beneficiaries her for children. Thus, by disclaiming it, it didn't become part of her estate that raised her federal estate tax bill. By disclaiming it, it went to the right to the kids that she wanted it to go to, and there wasn't a gift tax consideration.

8:43 So in her case, saying no to that IRA was a smart tax move. Another example, and again sometimes it comes in because of iras, which oftentimes are tax issues. Let's say that you are the beneficiary on a parent's IRA and your younger children are the contingent beneficiaries, meaning what if you're alive, you receive the IRA. If you're not, it goes to your children. When your parent dies and you're looking at making application to receive the proceeds, a question is what do you intend to do with them? Do you need the benefits yourself? If not, perhaps it would make more sense then to reject the IRA, to disclaim the IRA so that it will go directly to your children, assuming that's where you would want it to go, and they are most likely in a lower tax bracket. So again there can be an income tax savings from rejecting the IRA and the result of that having the IRA go to somebody in a lower tax bracket. So oftentimes it can be a smart tax move. That's number one. A second reason to reject

10:16 an inheritance is perhaps the property that you are getting isn't worth the liability or the hassle that you're going to have. In particular, we're normally talking about real estate. Maybe there's real estate and you're the beneficiary of a trust and you're supposed to receive the real estate. Maybe you're receiving the real estate by virtue of a ladybird deedon. We've had other episodes where we talk about that. Well, you've got to look at that and if you're going to receive real estate that you can't sell. Perfect example, time shares. Many people have time shares out there. Many people want to get rid of their time shares and have problems getting rid of them. Perhaps you're receiving that timeshare, or perhaps you're receiving other real estate that now you have taxes that you have to pay. Maybe you have maintenance if there's buildings on it, and you have utilities. If you're not going to be able to sell it and you don't plan on staying in it, it might not be worth the liability or the hassle in that case for you to receive it only to have it cost you money, only to not be able to get rid of it. And you might have been better off in that case to look, I just don't want it. I just don't want it, and I'm not going to deal with it. Another example, though, is what if the property this again

11:46 real estate, has environmental issues with it. Maybe it has some underground storage tanks on it. Maybe it's farm home and there's some underground storage tanks or whatever it happens to. You've got to look at that now about the environmental liabilities that go along with that. And there can be all kinds of issues with environmental liabilities related to real estate today, not just underground storage tanks, but there's all kinds of them, and so you might be better off if there's significant environmental problems. You don't want to take on that liability. There's another reason to say no, I don't want to receive that inheritance Number three.

12:33 If you receive it, you're simply going to trigger a tremendous amount of family drama. Most clients and parents want to have family harmony at the time of the death. Parents and putting together estate plan want their children to get along. Children who are receiving an estate normally want to get along with their siblings. But sometimes the nature of the asset that you are about to receive is going to potentially cause more problem. And let's just use one example.

13:16 Vacation homes. A lot of vacation homes in the state of Michigan, and maybe it's a vacation home that's been in the family for a very long time. And now that vacation home is supposed to go to you and your siblings, but you and all of your siblings don't get along. Now you're going to own a vacation home together. Now you have to manage that home together, but we already know that you don't get along with some of the siblings. Sometimes the better arrangement is to simply say, hey, I don't want an interest in the vacation home, or maybe the estate plan that's not vacation home but it has other family home doesn't have to be a vacation home, but just real estate. In general, and the plan is per maybe a deed that was prepared you're going to jointly own it with your siblings and you don't get along with them, or per a trust where it's supposed to be distributed out to you. So there are a number of scenarios where you might decide, you know what, the family conflict that is going to develop here isn't worth it. And it might not be family conflict with your siblings.

14:35 It might be family conflict with spouses or significant others of your siblings. So sometimes sometimes rejecting the inheritance is one way to try and avoid family conflict. Now which it might be able to work out these are all the things that have to be done at that time. It might be that there are other assets that you can work out with the trustee or the personal representative or whoever sat on the estate, where you'll say, I will reject this asset in return for receiving this asset. So there might be some negotiation options that might be available at that time as well. Number four. You know, let's say you're on the brink of bankruptcy and if you receive the inheritance, the inheritance won't wipe away your debts, you're still going to have additional creditors.

15:37 And now if you receive an inheritance, all you're really doing is paying your creditors. Everything that you receive or the bulk of what you receive is simply going to go to your creditors. You might look at that and say, why would I do that? If I reject the inheritance, and maybe now it's going to go to other siblings, or maybe my share might be going to my children. I mean, there's all kinds of scenarios depending upon what's going to happen, and that's always something that you have to look at too. If I reject the inheritance, if I disclaim this asset, what's going to happen to it? But maybe in that case, you're going to look and say, if I receive it, it's going to go to my creditors.

16:27 If I reject it, it's going to go to somebody other than my creditors. That might be a reason because you don't have to accept it. Your creditors can't force you generally to accept it. Although this keep in mind, it has to be done before you take it. You can't receive it and then say, oh, I'm going to reject it, but there might be a benefit by not taking the asset so that you don't have to pay your creditors. Now, something something to think about. Certainly, if you're in that situation and maybe it's mom and dad that are preparing their estate plan for you, maybe maybe you could have a discussion with them in which they would decide as part of their estate plan, rather than to leave your inheritance outright to you, which would put you in the position of considering having to reject it, maybe they would set up a trust and inside their trust they would hold on to what you would otherwise receive and have it paid out to you on some sort of schedule over time, rather than a lump sum that would have to go to your creditors. So sometimes when you're in that situation, talking to a loved one's about their estate plan might be an appropriate discussion that you have one other thing to think about too, if you're already in

17:59 bankruptcy. And disclaimer, we don't do bankruptcies, but if you're already in bankruptcy and you disclaim property and you don't disclose it in the bankruptcy, I'm pretty sure the bankruptcy trustee is be able to go after that property even though you had disclaimed it because you committed improprieties relative to the bankruptcy proceding itself. Number five, Maybe maybe if you receive the inheritance, you will then now or at a later date, be disqualified from receiving government benefits such as Medicaid.

18:52 As you likely know Medicaid, there are limitations on what you can own and still qualify for Medicaid. So perhaps you haven't filed for Medicaid. Perhaps you're in a position you don't think you're going to have to file for Medicaid, but you're looking at it and saying, well, jeez, if I receive this inheritance, then clearly I will have more in assets than I can have, and if I did then apply for Medicaid, it might disqualify me. So there again can be a decision that you're making that says, I don't want to receive those assets because I don't want my estate to simply be bigger, because if my estate is larger, I won't be able to qualify for Medicaid. And again, looking at where the assets going to go if you disclaim them, maybe they're going to go to your kids, And so you're making a choice, do I want to receive the assets only to disqualify myself for Medicaid? Or do I want to disclaim the assets and have those assets go to my children in that example, so that I still techt my qualification for Medicaid and the assets now go to my children and don't have to be spent on long term care. If that becomes a possibility, it gets tricky. So you want to make sure that you're consulting with a lawyer to determine whether disclaiming will be successful and who you have to notify. And most

20:22 of time this is going to happen where you're on Medicaid already and now you are notified that a loved one has died, and now you're looking at receiving an asset. You might not be able to refuse receiving that asset. You might have to receive it and you might have to spend it down And number six, maybe maybe it's simply the right thing to do. Perhaps your parents put together their estate plan and they wanted to provide for their children equally, and that's what their estate plan does. Maybe you've got let's say, in my family seven children in the family, so I have six siblings. Parents wanted to treat everybody equally. But perhaps when your parent dies, you are very successful, but you have a sibling or siblings who are struggling. Maybe if you disclaimed, and if as a result of your disclaiming or refusing the inheritance that ends up increasing the amount of the estate that would go to your sibling who's struggling, then maybe maybe it would just be the right thing to

21:56 do. You would be helping out your sibling. Now alternatively, you might look and say, well, why don't I just take the inheritance and turned around give it to my siblings, And now you're going to have to have a whole conversation potential gift tax for yourself, stepped up basis and value of assets, all these other factors that are going to have to be considered in looking out what you're doing. But the idea could be that you're simply look back and saying it's not that I don't want it, but I can help out a sibling in that case by doing something else, or maybe a child, Maybe the child is the alternate, the contingent beneficiary to you and maybe your child is struggling. You simply say, look, I don't really need it, we don't really need it, and perhaps disclaim it, reject the assets so that it would then go to the children. Now, there can be many, many more reasons to reject inherence, but these again are the common ones. It might be a tax smart tax move. The property is not worth the hassle. You don't want to trigger family DRAMLA, you don't want to have to use it to pay your creditors, you want to maintain your qualification for government benefits. Or perhaps it is simply the right thing to do. Tuesday with Tom has been brought to you by the estate planning attorneys at Doyle Law PC. To learn how we can help you with your estate

23:29 plan or with settling a loved ones estate, please call us today at five one seven three two three seven three six six. That's five one seven three two three seven three six six