08 Mar ‘Disclaiming’ assets after a death

Q. I have a question about disclaiming assets. A deceased wife’s share of a house was passed to her husband upon her death by divorce agreement. The husband filed a disclaimer to pass the house to their kids, but the disclaimer was filed late — nine months and 14 days after the death. What are the consequences?
— Late

A. Unfortunately, that deadline is one that can’t be missed, even by 14 days.

In order for a disclaimer to be a Qualified Disclaimer for federal gift tax purposes, it must be appropriately filed with the proper custodian of the disclaimed asset within nine months of the death, said David Ritter, chair of the tax practice at Brach Eichler in Roseland.

He said this disclaimer is not “qualified,” but if proper procedures are followed, it can be still be a valid disclaimer under applicable state law. We don’t have enough information about this specific case to determine if it’s valid under the law.

“If the disclaimer is effective, then since it is not a qualified disclaimer under IRS Section 2518, the disclaimer would constitute a gift,” Ritter said. “If the amount disclaimed exceeds the annual gift exclusion — $14,000 per donee in 2017 and $15,000 per donee in 2018 — it would be a gift that would be tentatively taxable subject to the offset by the remaining applicable credit available to the disclaimant.”

Ritter said the gift could be valued up to the applicable credit equivalent of over $11 million in 2018 or $5 million in 2017 — unless the applicable credit was previously used — before there would be any actual gift tax due and payable.

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This post was first published in March 2018.