How to Reject an Inheritance (Episode #277)

0:30 Well, good afternoon, Michiganders. It is Tuesday, April eleventh, twenty twenty three, and this is Tuesday with Tom, Michigan's only weekly podcast where we do answer your questions about a state planning and a state settlement in the state of Michigan, and we don't send you a bill. As always, 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, Welcome to today's program. Well, if you listen to last week's episode, I talked about twelve types of CDs, twelve different types of CDs. So if you're considering having CDs as part of your investment portfolio, and many, many people are thinking about revisiting CDs now. Why they're paying a better interest rate than they were a year or two years ago, and there's a lot of uncertainty about what's going on with the stock market, what's going on with other sorts of investments, and so many clients, if they haven't already, are now actively looking at having CDs as part of their investment portfolio. And if you're among those people, I encourage you listen to the last episode where I talk about the twelve different types of CDs, because you've got a lot of options. That isn't just going to your bank that you

2:01 bank with all the time and taking whatever CDs that they have available. And the week before previous episode to that, I talked about something else concerning CDs, and that's the concept of a CD ladder, which is a way to increase the interest that you're actually going to be receiving on your CDs. So if you're looking at CDs, I encourage you listen to last week's episode and the episode before that one. Today I'm going to move away from CDs. We're going to talk about just saying no. And this is not Nancy Reagan's just Say No to drug Just say no, which is using what we call a disclaimer to reject and inheritance. But please remember that what I'm about to discuss during their program is, as always, for educational purposes only. It is not intended to be legal advice. You need to work with your attorney to determine what is appropriate for you and your estate plan. Just say no

3:34 using a disclaimer to reject and inheritance. So let's spend a little time today talking about what disclaimers are, how they work, and what they're used for. And let me give you some Let me give some examples dealing with clients that we have been involved with. One we had a situation where a husband died and his wife had been the beneficiary of his IRA, which is normally what most of pouses do in that situation, though, as it turned out that the spouse who was the beneficiary decided that she did not need her husband's money. She had plenty of money on her own, was never going to worry about of her own money, and if she did receive the money from her husband, she was going to turn around and simply give it to the kids, because that's who ultimately she wanted to go to. Well, had she received the proceeds from her husband's IRA and then turned around and given that IRA funds given those IRA funds to her children, she would have been making gifts to her children, and given her circumstances at the time, they would have been subject to federal estate gift tax. What was the answer. The answer was if she disclaimed the IRA, which basically saying I don't want my

5:06 husband's IRA. In that case, the IRA proceeds then went to the next in line beneficiaries as they were designated on her husband's designation for his IRA. It basically said, if my spouse is alive, give it to my spouse. If my spouse isn't alive, then distribute it equally to my children. So by her disclaiming the proceeds, the proceeds now went directly from the IRA to the children, so it was not a gift from her. And when it went directly from the IRA to the children, the children all had options at that time to have the iras put into what we're called inherited I raise, and they were able to take out the IRA proceeds during their life expectance.

6:01 Another example joint owners. Sometimes you will turn out to be a joint owner on property and you don't want to be the joint owner on property. In many cases you didn't even know you had ever been made the joint owner on property, and then someone dies and you discover lo and behold, I'm a joint owner on property with property that I don't want to have involved with. I don't want to be involved. Perhaps with the other joint owners, you can use a disclaimer to say no I don't want that interest in this real estate. And if you do that, then the real estate is going to pass to the other owners that had been joint with you on that real estate. And one more example, life insurance proceeds. You might be the beneficiary the life insurance policy and you might decide that you don't want the proceeds from the life insurance policy. And again it oftentimes happens where you have a person who's the beneficiary and they're saying, you know, if I receive the life insurance policies, I'm going to simply turn around and give it to my kids. If I disclaim the life insurance policies, and if my children are named as the alternate or contingent beneficiaries on the life insurance policies, then the proceeds will go right from the insurance company to the children. So using disclaimers

7:38 to say no to life insurance, now, you can use disclaimers to say no to bank accounts. You can use disclaimers no to a lot of different assets are out there, So that's kind of what they're used for. When somebody is receiving an asset and there might be reasons that they don't want to receive the asset. Well, in Michigan, under our Probate Code, we have a law that is the disclaimer of property interest law, and essentially that creates a right to disclaim. So you don't have to receive an inheritance if you don't want to. You don't have to receive assets as a beneficiary or a cod or pod if you don't want to. And that disclaimer can be total or partial. You can disclaim entirely whatever that asset happened to be, or have a partial disclaimer of some of the assets that might otherwise become in your way. So who can disclaim, Well, a person can disclaim, a trustee. Let's say that there's a trust and that trust is supposed to receive assets, and the trustee has authority under the trust to disclaim assets because you have to have that authority designate in the trust. Then a trustee can disclaim, and a fiduciary what we would call a fiduciary could disclaim. So,

9:11 for example, a personal representative under an estate that's going to have assets coming to the state could potentially disclaim those assets. A power of attorney who's operating on behalf of another person might in fact be able to disclaim those assets. And so if the assets are disclaimed, then what's going to happen with those is they're going to be distributed as though the person who was to receive them had failed to survive. So if you're the spouse and you disclaim the assets, again, if it's a beneficiary designation, it's going to go to the alternate contingent beneficiaries, etc. We have a situation right now that we're dealing within the office where somebody had created a trust, but they had real estate, and they had never conveyed the real estate into their trust during their lifetime, but they did have what's called a poor over will. As you might know, the poor over will basically says, when in this case, the real estate goes through probate, when real estate is all done, transfer the real estate into the trust. Well, under the circumstances, the beneficiaries ultimate beneficiaries of the estate, which were children, would be better off to receive the real estate through the probate process rather than through the trust. So

10:45 if it goes into the trust and then goes to the children, it would not be for certain circumstances as advantageous for them. As it would be if it came through the probate estate. So in that case, what will happen The trustee, again they have that authority under the trust, will disclaim receiving the inheritance. That means that the inheritance then that would have otherwise in this case, the real estate that would otherwise come into the trust is now going to be distributed out from the estate to the children and they will enjoy the benefits of having had that rather than going into the trust. So using a disclaimer can even be done by a trustee at times, again, as long as there's authority, because it might turn out there's a better beneficiary designation or better benefit to the heirs by having that real estate come through probate. So what are the requirements to have a disclaimer. Well, one under Michigan law has to be in writing, so you can't have verbal or oral disclaimers.

11:58 That writing has to describe what the disclaimed interest is. So if you're disclaiming real estate, describing the real estate that you're disclaiming, if it's a bank account, describing the bank account, life insurance, et cetera. Has to be signed by the person who's making the disclaimer. Again, that's going to be the person or the fiduciary of the trustee, And depending upon what interest arises and how that interest arises, there's time limits under the statute under which that written disclaimer has to be given to, in that case, the bank or the personal representative or the life insurance company, whoever it is that the disclaimer is being given to. So you've got some time frames that are going to be specifically related to how the interest arises. Does it arise under real estate, does it arise under beneficiary, does a nation under life insurance, etc. Etc. So you have some time limits to do this. And what you can't do is you can't disclaim something that you've already taking the beneficiary of. So let's say, for example, you're the beneficiary on a bank account and you've already taken money out of that bank account after the person died, and now you want to disclaim the rest. You can't do that because

13:30 you've already received benefits from that asset. Or let's say you're a joint owner on a house and now you've moved into the house, and now you're living in that house, and one day you say, hey, I really don't want this house anymore. It's going to be too late, So you cannot have received the benefit or taken the benefit of the asset and then still be able to disclaim it afterwards. Side note too, we will have situations where let's say that somebody is going to receive an inheritance and as a result of receiving that inheritance or they're the beneficiary and asset, whatever it is, and as a result of them receiving that they will now be disqualified from Medicaid because they have received too much by way of the Medicaid asset. Well, a disclaimer of an inheritance to qualify someone for Medicaid is going to be considered by the government as a divestment, which will incur divestment penalties, which now gets in all involved into the five year lookback rules. So it's not simply easy to say, oh, I'm just not going to receive that asset and therefore

15:00 qualify myself for Medicaid. So Medicaid is a little bit more complicated and you need to keep that in mind and work with a obviously a Medicaid planning attorney in what your options might be. But getting back to if you will. What are these disclaimers going to be use for. In some cases, that might be to avoid some federal estate taxes. Other cases, as I've already talked about, it might be avoid gift taxes, perhaps transferring In a particular case, an I err to children who are going to be in a lower tax bracket, so that if a parent is going to receive the proceeds and they're in a higher tax bracket, and again if they're not going to use those proceeds, perhaps doing a disclaimer, having the proceeds go to the children in a lower tax bracket would be good planning on their part. In some cases, it's simply to avoid family conflict. I don't want to receive the asset because my siblings are going to be all mad at me, and I'm just going to disclaim this asset and step away from it. Could be a lot could be that, and it could just be I just don't want it.

16:08 Maybe the asset is just something I just don't want to deal with. Maybe I'm going to be the joint owner of real estate it turns out, and I didn't know that. But if I take the real estate, now I have to deal with selling the real estate and all those kinds of things because I just don't want it using a disclaimer. It might be appropriate for real estate, but oftentimes disclaimers can be thought of even when your state planning is being created, or could should be thought about even when your state plan is being creative, because it does allow some post death planning. So again example, you have an IRA, you're making the spouse the beneficiary on the IRA, you should give consideration too, who's going to be the contingent beneficiary?

17:00 Who is it that's going to receive the I ray if the spouse doesn't survive or if the spouse after one spouse dies simply disclaims the benefit, and so it gives them perhaps some planning options to think about in advance. Well, yes, I'm the beneficiary, but what if I want to disclaim it after I die? What then is going to happen with the assets? So it does allow some very unique limited if you will, but post death planning and in the estate planning field, oftentimes when we talk to clients, it's that post death planning that can be so very important because now you have all of you know what, everything, you know who's survived, do you know what all the assets are and so being able to do some planning after a person dies to avoid taxes or family conflict or whatever it happens to be can present valuable opportunities if one is going to look at using disclaimers, So again, just say no. You don't have to receive an inheritance. You can always say no, and there might be good reasons for planning purposes to say no as well. Of course, a man and I would be honored to

18:56 have the opportunity to help you put together your state plan, protect your loved ones with a properly created a state plan, or perhaps amending a plan. Or if you have questions about using disclaimers as part of your own estate, or if you're looking at having inherited an asset or being aligned to inherit an asset, and you've got questions about using disclaimers and what options ZOSE might present for you, please take advantage. Go to our website doilawpc dot com, schedule an in person consultation at the East Lansing office, or schedule a virtual call either zoom call or telephone call. Again, all of that information is available at doil Law PC. So there you'll find complete information on how to schedule a consultation with this be at zoom, telephone or in person. Remember too that we do have our legal store again at doilawpc dot com and the purpose of a legal store is for you to be able to order individual legal documents online that can be prepared and delivered to you. And just side note, they can also be ordered through our Facebook page as well. So again I encourage you visit Doyle Law PC so you will find more information about how you can consult with us. So I think that's going to be it for

20:38 today's show. As always, though, if you have a comment about the program, a topic that you'd like to have me discuss, or questions that you'd like to have answered, please send me an email that would be tom at Tuesday with Toom dot com. Invite you to follow us on Facebook and invite your family and friends to follow us on Facebook. That would be Tuesday with Tom. The Office Facebook page is available at Doyle Law PC. Remember too that our program is available probably anywhere that you listen to podcasts, be it Apple Podcasts, Spotify, Google podcast iHeart Radio, Spreaker, whatever the services that you use to listen to podcasts. You will likely find our podcast available and if you're home, you can always ask your smart speaker to play Tuesday with Tom as well. Well. Thank you again for spending some of your time with us today and as always, I hope that you have an awesome day and an awesome week in Michigan. Stay safe. Tuesday with Tom has been brought to you by the estate planning attorneys at Doyle Law PC.

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