To many New York residents, the thought of disclaiming their right to a multimillion-dollar inheritance may seem odd. There are certain situations, however, in which doing just that can be a smart idea.
Many people who disclaim their inheritance of an IRA from their parent will do so in order to remove its value from their estate, allowing them to to remain within the federal estate exemption amount. The inheritance will then pass to the co-beneficiary or the secondary beneficiary. A parent may want to disclaim their right to an inheritance so that it instead passes to their child, who might be at a lower tax bracket than the parent. This can result in an overall net savings for the family on its tax burden.
Disclaiming has to be done in writing and must occur within nine months of the inheritance. People who intend to disclaim their right should first make certain they know to whom the inheritance will pass if they do so. They should not withdraw or invest any of the money from the IRA, or they will lose their right to disclaim it. The only exception to this is if the deceased person who held the IRA didn’t take the required minimum distribution during the year of death. In that event, that amount only can be withdrawn.
When a person passes away and leaves a large IRA to an heir, the heir might want to discuss whether disclaiming it would be beneficial to their family. An estate planning attorney may be able to review their client’s estate plan and determine whether it makes sense to remove the value of the inheritance from their estate . They may also help determine whether doing so will result in a lower overall tax burden.