How to Disclaim an Inheritance (And Why You Would)

Receiving an inheritance can provide a financial windfall, but there are some scenarios where you may prefer not to receive one. In that case, you might be wondering if it’s possible to decline an inheritance and the responsibilities that go with it. This process is called “disclaiming” an inheritance. It means you’re turning down the rights to the assets you were supposed to inherit. Initiating this starts with understanding the legal process and various rules that are involved.

If you’re considering disclaiming an inheritance, you may want to speak with a financial advisor about it.

What Does It Mean to Disclaim an Inheritance?

First, it’s important to understand what disclaiming an inheritance means. In a nutshell, it means you’re refusing any assets that you stand to inherit under the terms of someone’s will, a trust or, in the case of a person who dies intestate, the inheritance laws of your state. You can also disclaim an inheritance if you’re the named beneficiary of a financial account or instrument, such as an individual retirement account (IRA), 401(k) or life insurance policy.

Disclaiming means that you give up your right to receive the inheritance. If you choose to do so, whatever assets you were meant to receive would be passed along to the next beneficiary in line.

It’s not typical for people to disclaim inheritance assets. And while it may seem strange to do so, there are some instances where it might be preferable for an heir or beneficiary to turn down an inheritance.

Reasons for Disclaiming an Inheritance

There are no specific rules for when you can or can’t disclaim an inheritance; it’s more a matter of personal choice. However, federal and state law determine whether a disclaimer is legally effective and whether it qualifies for federal gift and estate tax purposes. With that in mind, you may choose to refuse an inheritance for any number of reasons, including the following:

You’d prefer the assets to pass to the next beneficiary or heir identified under the will, trust, beneficiary designation or applicable state law. With a qualified disclaimer, you generally cannot choose who receives the property.
Inheriting assets would increase the size of your estate and potentially create tax planning complications for your own heirs once it’s time to pass your assets on.
Accepting certain assets, such as money held in an IRA, would push you into a higher tax bracket and you’d rather avoid getting stuck with a large tax bill.
Allowing the inheritance to pass to someone else, such as a secondary beneficiary, would allow for the wishes of the deceased person to be more accurately fulfilled.
Receiving an inheritance could affect eligibility for certain means-tested programs or benefits, such as Medicaid or Supplemental Security Income (SSI), depending on the applicable rules.
You just don’t need the inheritance because you’re financially stable and would rather someone else benefit from it.

Those are all valid reasons to disclaim an inheritance. However, in some instances, it may come down to simply not wanting whatever it is you’re supposed to inherit.

Say, for example, a relative leaves you their home, which is in need of extensive repairs or has expensive property taxes. If their will stipulates that you can’t sell the property and renting it out isn’t an option, then disclaiming it may be the best choice for shifting the financial burden of ownership to someone else.

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How to Disclaim Inheritance Rights

Disclaiming an inheritance requires following specific IRS rules to ensure the refusal is handled properly.

If you feel that refusing an inheritance is the right thing to do, for whatever reason, you need to know what’s required to do so. First, there are certain guidelines you need to follow to satisfy the IRS and ensure that you’ve properly disclaimed an inheritance. For a disclaimer to qualify under federal tax law, the requirements generally include the following:

You make your disclaimer in writing.
The disclaimer is an irrevocable and unqualified refusal to accept the interest in property.
The written disclaimer is delivered to the appropriate person, such as the transferor, the transferor’s legal representative or the holder of legal title to the property, within nine months after the later of the date the interest was created or the date you turn 21. For an inheritance created at death, that generally means within nine months of the decedent’s death for a beneficiary who is already 21 or older.
You receive no benefits from the proceeds of the assets you’re disclaiming.
You have not accepted the disclaimed property or any of its benefits before making the disclaimer.
The property passes to the decedent’s spouse or to someone other than you without any direction from you about who should receive it.

Aside from that, you also have to follow any guidelines set by your state to disclaim an inheritance. For example, your state might require that a disclaimer be notarized or witnessed, filed with the probate court or shared with the executor of the deceased person’s estate or the trustee in charge of distributing assets from a trust.

Signing Over Your Inheritance or Refusing the Inheritance

Refusing an inheritance through a qualified disclaimer is different from accepting the property and then signing or giving it over to someone else. With a qualified disclaimer, you generally cannot direct who receives the property. Instead, it must pass according to the will, trust, beneficiary designation or applicable law without your direction.

If you first accept an inheritance and then transfer it to another person, the transaction generally is not a qualified disclaimer for federal tax purposes. Depending on the circumstances, the later transfer may instead be treated as a gift and could create gift tax reporting consequences.

What Is a Disclaimer?

A disclaimer in the context of disclaimed inheritance refers to a legal refusal by an heir or beneficiary to accept an inheritance or gift left to them through a will, trust or intestate succession. This type of disclaimer is often used to ensure that the property or assets pass directly to the next eligible recipient without the disclaiming individual ever taking ownership.

Importantly, the individual must formally and irrevocably reject the inheritance according to legal procedures for the disclaimer to be valid, usually by signing a written statement within a specific time frame.

For federal estate and gift tax purposes, a disclaimer that satisfies Internal Revenue Code Section 2518 is treated as though the disclaimed interest had never been transferred to the person making the disclaimer. This treatment is one reason following the qualified-disclaimer requirements can matter when estate or gift taxes are a concern.

What Happens to a Disclaimed Inheritance?

It’s very important to note one thing about disclaiming an inheritance: you don’t get to decide what happens to it. Once you sign off on a refusal to inherit, the assets you would have received are passed on to the next person in line. That’s important to remember if you plan to disclaim an inheritance so that your child or another family member can receive it instead. Unless they’re the next beneficiary or heir on the list, there’s no guarantee that the assets will go to them.

And if you’re considering disclaiming assets you should consider how that may impact the person who will receive them. Say, for example, that the next beneficiary after you is a family member with special needs. If you’re passing on a large inheritance to them because you’ve refused it, that could affect their ability to continue receiving Medicaid, disability or other government benefits.

It’s also important to keep in mind that disclaiming an inheritance is permanent. If you change your mind down the line and decide you do want the assets you would have inherited, you can’t reverse your original disclaimer.

But you could avoid disclaimer’s remorse by only refusing part of an inheritance. There’s no rule that says you have to disclaim all of the assets you’re entitled to receive as an inheritor. So if a family member names you the beneficiary of their IRA, for example, and also wills their home to you, you could choose to keep the money from the IRA and let someone else have the house.

Federal tax law can also permit a qualified disclaimer of an undivided portion of a single property interest when the applicable requirements are satisfied. The exact form of a partial disclaimer can be important, so state law and the governing estate documents should also be reviewed.

When You Cannot Disclaim an Inheritance

Disclaiming an inheritance is only possible if you have not accepted it in any form. Once an heir or beneficiary takes action that indicates ownership or control, the right to disclaim is lost. At that point, the inheritance is treated as received, even if the assets have not been fully transferred or spent.

Acceptance can occur through actions that may seem minor. Taking possession of inherited property, moving into a home, depositing a check from the estate, or withdrawing funds from an inherited account can all count as acceptance. Using inherited assets to pay personal expenses or exercising authority over them, such as directing how they are invested or distributed, can also eliminate the ability to disclaim.

Timing alone is not sufficient to preserve disclaimer rights. Even if you are still within the IRS nine-month window, accepting benefits from the inheritance makes a disclaimer invalid. The IRS and state courts focus on conduct, not intent, when determining whether an inheritance has been accepted.

Once an inheritance is accepted, any attempt to pass it to someone else is treated as a gift rather than a disclaimer. For federal tax purposes, transferring property after accepting it generally does not qualify for the special treatment available to a qualified disclaimer and may instead constitute a taxable gift that can require Form 709 reporting, even when no out-of-pocket gift tax is ultimately due.

For this reason, heirs who are considering a disclaimer typically need to delay any interaction with inherited assets until a decision is made. Acting too quickly or without clarity on the rules can permanently limit available options, even if the original goal was to redirect the inheritance to another beneficiary.

Bottom Line

Sometimes refusing an inheritance is the most practical financial decision you can make.

Disclaiming an inheritance is not a common choice, but it is an option worth understanding. If accepting an inheritance creates tax complications, affects benefit eligibility, or simply does not align with your wishes, refusing it may be the right decision. Before doing so, it is important to understand exactly what you are giving up and how to disclaim assets correctly to avoid disputes later.

“Disclaiming an inheritance is a personal decision, but it’s probably a good idea to consult an attorney or a financial planner to discuss all your options and ensure you’re following guidelines. Be aware that involving family before talking with a professional could invite unwanted opinions and complicate your decision-making process,” said Tanza Loudenback, CFP®.

Tanza Loudenback, Certified Financial Planner™ (CFP®), provided the quote used in this article. Please note that Tanza is not a participant in SmartAsset AMP, is not an employee of SmartAsset and has been compensated. The opinion voiced in the quote is for general information only and is not intended to provide specific advice or recommendations.

Tips for Handling an Inheritance

If you’re in line to receive an inheritance, you may want to speak with a financial advisor who can help you understand the financial and tax implications of it. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area. You can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
If you stand to receive an inheritance, consider how it may fit within your larger financial plan and what kind of tax implications you could face. Inheriting an IRA, for example, can help you add to your retirement savings but it can trigger tax liabilities that you need to be prepared for. It may also be a good idea to review your own estate plan if you stand to inherit from someone else to determine how it could affect your estate and gift tax planning.