How to Reject an Inheritance (Episode #277)

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Well, good afternoon, Michiganders.
It is Tuesday, April eleventh, twenty

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twenty three, and this is Tuesday
with Tom, Michigan's only weekly podcast where

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we do answer your questions about a
state planning and a state settlement in the

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state of Michigan, and we don't
send you a bill. As always,

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I'm your host, Tom Doyle,
a state planning attorney, lifelong Michigan resident,

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an ambassador for all things good in
this great state of Michigan. Welcome,

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Welcome, Welcome to today's program.
Well, if you listen to last

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week's episode, I talked about twelve
types of CDs, twelve different types of

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CDs. So if you're considering having
CDs as part of your investment portfolio,

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and many, many people are thinking
about revisiting CDs now. Why they're paying

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a better interest rate than they were
a year or two years ago, and

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there's a lot of uncertainty about what's
going on with the stock market, what's

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going on with other sorts of investments, and so many clients, if they

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haven't already, are now actively looking
at having CDs as part of their investment

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portfolio. And if you're among those
people, I encourage you listen to the

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last episode where I talk about the
twelve different types of CDs, because you've

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got a lot of options. That
isn't just going to your bank that you

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bank with all the time and taking
whatever CDs that they have available. And

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the week before previous episode to that, I talked about something else concerning CDs,

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and that's the concept of a CD
ladder, which is a way to

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increase the interest that you're actually going
to be receiving on your CDs. So

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if you're looking at CDs, I
encourage you listen to last week's episode and

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the episode before that one. Today
I'm going to move away from CDs.

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We're going to talk about just saying
no. And this is not Nancy Reagan's

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just Say No to drug Just say
no, which is using what we call

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a disclaimer to reject and inheritance.
But please remember that what I'm about to

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discuss during their program is, as
always, for educational purposes only. It

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is not intended to be legal advice. You need to work with your attorney

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to determine what is appropriate for you
and your estate plan. Just say no

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using a disclaimer to reject and inheritance. So let's spend a little time today

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talking about what disclaimers are, how
they work, and what they're used for.

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And let me give you some Let
me give some examples dealing with clients

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that we have been involved with.
One we had a situation where a husband

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died and his wife had been the
beneficiary of his IRA, which is normally

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what most of pouses do in that
situation, though, as it turned out

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that the spouse who was the beneficiary
decided that she did not need her husband's

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money. She had plenty of money
on her own, was never going to

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worry about of her own money,
and if she did receive the money from

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her husband, she was going to
turn around and simply give it to the

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kids, because that's who ultimately she
wanted to go to. Well, had

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she received the proceeds from her husband's
IRA and then turned around and given that

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IRA funds given those IRA funds to
her children, she would have been making

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gifts to her children, and given
her circumstances at the time, they would

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have been subject to federal estate gift
tax. What was the answer. The

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answer was if she disclaimed the IRA, which basically saying I don't want my

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husband's IRA. In that case,
the IRA proceeds then went to the next

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in line beneficiaries as they were designated
on her husband's designation for his IRA.

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It basically said, if my spouse
is alive, give it to my spouse.

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If my spouse isn't alive, then
distribute it equally to my children.

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So by her disclaiming the proceeds,
the proceeds now went directly from the IRA

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to the children, so it was
not a gift from her. And when

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it went directly from the IRA to
the children, the children all had options

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at that time to have the iras
put into what we're called inherited I raise,

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and they were able to take out
the IRA proceeds during their life expectance.

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Another example joint owners. Sometimes you
will turn out to be a joint

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owner on property and you don't want
to be the joint owner on property.

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In many cases you didn't even know
you had ever been made the joint owner

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on property, and then someone dies
and you discover lo and behold, I'm

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a joint owner on property with property
that I don't want to have involved with.

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I don't want to be involved.
Perhaps with the other joint owners,

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you can use a disclaimer to say
no I don't want that interest in this

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real estate. And if you do
that, then the real estate is going

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to pass to the other owners that
had been joint with you on that real

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estate. And one more example,
life insurance proceeds. You might be the

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beneficiary the life insurance policy and you
might decide that you don't want the proceeds

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from the life insurance policy. And
again it oftentimes happens where you have a

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person who's the beneficiary and they're saying, you know, if I receive the

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life insurance policies, I'm going to
simply turn around and give it to my

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kids. If I disclaim the life
insurance policies, and if my children are

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named as the alternate or contingent beneficiaries
on the life insurance policies, then the

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proceeds will go right from the insurance
company to the children. So using disclaimers

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to say no to life insurance,
now, you can use disclaimers to say

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no to bank accounts. You can
use disclaimers no to a lot of different

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assets are out there, So that's
kind of what they're used for. When

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somebody is receiving an asset and there
might be reasons that they don't want to

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receive the asset. Well, in
Michigan, under our Probate Code, we

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have a law that is the disclaimer
of property interest law, and essentially that

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creates a right to disclaim. So
you don't have to receive an inheritance if

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you don't want to. You don't
have to receive assets as a beneficiary or

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a cod or pod if you don't
want to. And that disclaimer can be

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total or partial. You can disclaim
entirely whatever that asset happened to be,

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or have a partial disclaimer of some
of the assets that might otherwise become in

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your way. So who can disclaim, Well, a person can disclaim,

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a trustee. Let's say that there's
a trust and that trust is supposed to

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receive assets, and the trustee has
authority under the trust to disclaim assets because

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you have to have that authority designate
in the trust. Then a trustee can

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disclaim, and a fiduciary what we
would call a fiduciary could disclaim. So,

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for example, a personal representative under
an estate that's going to have assets

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coming to the state could potentially disclaim
those assets. A power of attorney who's

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operating on behalf of another person might
in fact be able to disclaim those assets.

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And so if the assets are disclaimed, then what's going to happen with

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those is they're going to be distributed
as though the person who was to receive

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them had failed to survive. So
if you're the spouse and you disclaim the

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assets, again, if it's a
beneficiary designation, it's going to go to

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the alternate contingent beneficiaries, etc.
We have a situation right now that we're

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dealing within the office where somebody had
created a trust, but they had real

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estate, and they had never conveyed
the real estate into their trust during their

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lifetime, but they did have what's
called a poor over will. As you

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might know, the poor over will
basically says, when in this case,

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the real estate goes through probate,
when real estate is all done, transfer

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the real estate into the trust.
Well, under the circumstances, the beneficiaries

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ultimate beneficiaries of the estate, which
were children, would be better off to

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receive the real estate through the probate
process rather than through the trust. So

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if it goes into the trust and
then goes to the children, it would

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not be for certain circumstances as advantageous
for them. As it would be if

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it came through the probate estate.
So in that case, what will happen

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The trustee, again they have that
authority under the trust, will disclaim receiving

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the inheritance. That means that the
inheritance then that would have otherwise in this

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case, the real estate that would
otherwise come into the trust is now going

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to be distributed out from the estate
to the children and they will enjoy the

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benefits of having had that rather than
going into the trust. So using a

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disclaimer can even be done by a
trustee at times, again, as long

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as there's authority, because it might
turn out there's a better beneficiary designation or

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better benefit to the heirs by having
that real estate come through probate. So

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what are the requirements to have a
disclaimer. Well, one under Michigan law

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has to be in writing, so
you can't have verbal or oral disclaimers.

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That writing has to describe what the
disclaimed interest is. So if you're disclaiming

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real estate, describing the real estate
that you're disclaiming, if it's a bank

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account, describing the bank account,
life insurance, et cetera. Has to

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be signed by the person who's making
the disclaimer. Again, that's going to

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be the person or the fiduciary of
the trustee, And depending upon what interest

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arises and how that interest arises,
there's time limits under the statute under which

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that written disclaimer has to be given
to, in that case, the bank

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or the personal representative or the life
insurance company, whoever it is that the

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disclaimer is being given to. So
you've got some time frames that are going

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to be specifically related to how the
interest arises. Does it arise under real

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estate, does it arise under beneficiary, does a nation under life insurance,

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etc. Etc. So you have
some time limits to do this. And

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what you can't do is you can't
disclaim something that you've already taking the beneficiary

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of. So let's say, for
example, you're the beneficiary on a bank

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account and you've already taken money out
of that bank account after the person died,

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and now you want to disclaim the
rest. You can't do that because

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you've already received benefits from that asset. Or let's say you're a joint owner

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on a house and now you've moved
into the house, and now you're living

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in that house, and one day
you say, hey, I really don't

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want this house anymore. It's going
to be too late, So you cannot

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have received the benefit or taken the
benefit of the asset and then still be

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able to disclaim it afterwards. Side
note too, we will have situations where

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let's say that somebody is going to
receive an inheritance and as a result of

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receiving that inheritance or they're the beneficiary
and asset, whatever it is, and

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as a result of them receiving that
they will now be disqualified from Medicaid because

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they have received too much by way
of the Medicaid asset. Well, a

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disclaimer of an inheritance to qualify someone
for Medicaid is going to be considered by

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the government as a divestment, which
will incur divestment penalties, which now gets

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in all involved into the five year
lookback rules. So it's not simply easy

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to say, oh, I'm just
not going to receive that asset and therefore

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qualify myself for Medicaid. So Medicaid
is a little bit more complicated and you

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need to keep that in mind and
work with a obviously a Medicaid planning attorney

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in what your options might be.
But getting back to if you will.

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What are these disclaimers going to be
use for. In some cases, that

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might be to avoid some federal estate
taxes. Other cases, as I've already

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talked about, it might be avoid
gift taxes, perhaps transferring In a particular

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case, an I err to children
who are going to be in a lower

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tax bracket, so that if a
parent is going to receive the proceeds and

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they're in a higher tax bracket,
and again if they're not going to use

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those proceeds, perhaps doing a disclaimer, having the proceeds go to the children

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in a lower tax bracket would be
good planning on their part. In some

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cases, it's simply to avoid family
conflict. I don't want to receive the

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asset because my siblings are going to
be all mad at me, and I'm

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just going to disclaim this asset and
step away from it. Could be a

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lot could be that, and it
could just be I just don't want it.

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Maybe the asset is just something I
just don't want to deal with.

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Maybe I'm going to be the joint
owner of real estate it turns out,

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and I didn't know that. But
if I take the real estate, now

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I have to deal with selling the
real estate and all those kinds of things

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because I just don't want it using
a disclaimer. It might be appropriate for

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real estate, but oftentimes disclaimers can
be thought of even when your state planning

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is being created, or could should
be thought about even when your state plan

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is being creative, because it does
allow some post death planning. So again

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example, you have an IRA,
you're making the spouse the beneficiary on the

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IRA, you should give consideration too, who's going to be the contingent beneficiary?

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Who is it that's going to receive
the I ray if the spouse doesn't

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survive or if the spouse after one
spouse dies simply disclaims the benefit, and

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so it gives them perhaps some planning
options to think about in advance. Well,

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yes, I'm the beneficiary, but
what if I want to disclaim it

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after I die? What then is
going to happen with the assets? So

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it does allow some very unique limited
if you will, but post death planning

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and in the estate planning field,
oftentimes when we talk to clients, it's

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that post death planning that can be
so very important because now you have all

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of you know what, everything,
you know who's survived, do you know

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what all the assets are and so
being able to do some planning after a

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person dies to avoid taxes or family
conflict or whatever it happens to be can

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present valuable opportunities if one is going
to look at using disclaimers, So again,

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just say no. You don't have
to receive an inheritance. You can

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always say no, and there might
be good reasons for planning purposes to say

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no as well. Of course,
a man and I would be honored to

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have the opportunity to help you put
together your state plan, protect your loved

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ones with a properly created a state
plan, or perhaps amending a plan.

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Or if you have questions about using
disclaimers as part of your own estate,

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or if you're looking at having inherited
an asset or being aligned to inherit an

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asset, and you've got questions about
using disclaimers and what options ZOSE might present

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for you, please take advantage.
Go to our website doilawpc dot com,

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schedule an in person consultation at the
East Lansing office, or schedule a virtual

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call either zoom call or telephone call. Again, all of that information is

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available at doil Law PC. So
there you'll find complete information on how to

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schedule a consultation with this be at
zoom, telephone or in person. Remember

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too that we do have our legal
store again at doilawpc dot com and the

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purpose of a legal store is for
you to be able to order individual legal

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documents online that can be prepared and
delivered to you. And just side note,

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they can also be ordered through our
Facebook page as well. So again

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I encourage you visit Doyle Law PC
so you will find more information about how

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you can consult with us. So
I think that's going to be it for

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today's show. As always, though, if you have a comment about the

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program, a topic that you'd like
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you'd like to have answered, please
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at Tuesday with Toom dot com.
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too that our program is available probably
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it Apple Podcasts, Spotify, Google
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Tuesday with Tom as well. Well. Thank you again for spending some of

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your time with us today and as
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awesome day and an awesome week in
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has been brought to you by the
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