Tag Archives: inheritance

4 Reasons to Turn Down an Inheritance

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Most people are happy to receive an inheritance. But there may be situations when you might not want one. You can use a qualified disclaimer to refuse a bequest from a loved one. Doing so will cause the asset to bypass your estate and go to the next beneficiary in line. Let’s take a closer look at why you might want to take this action with four reasons to turn down an inheritance.

Gift and Estate Tax Savings

This is often cited as the main incentive for using a qualified disclaimer. But make sure you understand the issue. For starters, the unlimited marital deduction shelters all transfers between spouses from gift and estate tax. In addition, transfers to non-spouse beneficiaries, such as your children and grandchildren, may be covered by the gift and estate tax exemption.

The exemption shelters a generous $13.61 million in assets for 2024. By maximizing portability of any unused exemption amount, a married couple can effectively pass up to $27.22 million in 2024 to their heirs, free of gift and estate taxes.

However, despite these lofty amounts, wealthier individuals, including those who aren’t married and can’t benefit from the unlimited marital deduction or portability, still might have estate tax liability concerns. By using a disclaimer, you ensure that the exemption won’t be further eroded by the inherited amount. Assuming you don’t need the money, shifting the funds to the younger generation without them ever touching your hands can save gift and estate taxes for the family as a whole.

Generation-Skipping Transfer Tax

Disclaimers may also be useful in planning for the generation-skipping transfer (GST) tax. This tax applies to most transfers that skip a generation, such as bequests and gifts from a grandparent to a grandchild or comparable transfers through trusts. Like the gift and estate tax exemption, the GST tax exemption is $13.61 million for 2024.

If GST tax liability is a concern, you may want to disclaim an inheritance. For instance, if you disclaim a parent’s assets, the parent’s exemption can shelter the transfer from the GST tax when the inheritance goes directly to your children. The GST tax exemption for your own assets won’t be affected.

Passing Down a Family Business

A disclaimer may also be used as a means for passing a family-owned business to the younger generation. By disclaiming an interest in the business, you can position stock ownership to your family’s benefit.

Charitable Deductions

In some cases, a charitable contribution may be structured to provide a life estate, with the remainder going to a charitable organization. Without the benefit of a charitable remainder trust, an estate won’t qualify for a charitable deduction in this instance. But using a disclaimer can provide a deduction because the assets will pass directly to the charity.

We Can Help with the Details

Every situation is different, and there may be other reasons to turn down an inheritance, too. Additionally, be aware that a disclaimer doesn’t have to be an “all or nothing” decision. It’s possible to disclaim only certain assets, or only a portion of a particular asset, which would otherwise be received. In any case, before making a final decision on whether to accept a bequest or use a qualified disclaimer to refuse it, turn to the estate tax professionals at Ramsay & Associates. We can help you better understand the details and answer any questions. Contact us today.

About the author

Brady is the owner of Ramsay & Associates. He specializes in financial statement preparation and personal, fiduciary and corporate tax and accounting.

His professional experience includes seven years' experience for local and national CPA firms before joining Ramsay & Associates in 2006.

He has a Bachelor of Accounting degree from the University of Minnesota Duluth. He is a Certified Public Accountant, a member of the Minnesota Society of CPA's, an Eagle Scout, as well as an active volunteer in the community.

Estate Planning and Spousal Rights

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When it comes to your wedding, there’s a lot to plan and think about. And this extends beyond rings and invitations. You also want to consider estate planning and spousal rights before saying “I do.” Let’s look at what to know regarding assets and laws when it comes to your spouse.

Spousal Inheritance Rights

If you’re taking a second trip down the aisle, you may have different expectations than you did when you got married the first time — especially when it comes to estate planning. For example, if you have children from a previous marriage, your priority may be to provide for them. Or perhaps you feel that your new spouse should have limited rights to your assets compared to those of your spouse from your first marriage.

Unfortunately, the law doesn’t see it that way. In nearly every state, a person’s spouse has certain property rights that apply regardless of the terms of the estate plan. And these rights are the same, whether it’s your first marriage or your second. Here’s an introduction to spousal property rights and strategies you may be able to use to limit them.

Defining a Spouse’s “Elective Share”

Spousal property rights are creatures of state law, so it’s critical to familiarize yourself with the laws in your state to achieve your planning objectives. Most, but not all, states provide a surviving spouse with an “elective share” of the deceased spouse’s estate, regardless of the terms of his or her will or certain other documents.

Generally, a surviving spouse’s elective share ranges from 30 percent to 50 percent, though some states start lower and provide for progressively larger shares as the duration of the marriage increases. Perhaps the most significant variable, with respect to planning, is the definition of assets subject to the surviving spouse’s elective share rights.

In some states, the elective share applies only to the “probate estate” — generally, assets held in the deceased spouse’s name alone that don’t have a beneficiary designation. In other states, it applies to the “augmented estate,” which is the probate estate plus certain non-probate assets. These assets may include revocable trusts, life insurance policies, and retirement or financial accounts that pass according to a beneficiary designation or transfer-on-death designation.

By developing an understanding of how elective share laws apply in your state, you can identify potential strategies for bypassing them.

Using Estate Strategies

Elective shares are designed to protect surviving spouses from being disinherited. But there may be good reasons for limiting the amount of property that goes to your spouse when you die. For one thing, your spouse may possess substantial wealth in his or her own name. And you may want most of your estate to go to your children from a previous marriage.

Strategies for minimizing the impact of your spouse’s elective share on your estate plan include making lifetime gifts. By transferring property to your children or other loved ones during your lifetime (either outright or through an irrevocable trust), you remove those assets from your probate estate and place them beyond the reach of your surviving spouse’s elective share. If your state uses an augmented estate to determine a spouse’s elective share, lifetime gifts will be protected so long as they’re made before the lookback period or, if permitted, your spouse waives the lookback period.

Talk to the Professionals

Elective share laws are complex and can vary dramatically from state to state, so understanding estate planning and spousal rights can be confusing. That’s why the estate planning professionals at Ramsay & Associates are here to help. If you’re remarrying, we can help you evaluate their impact on your estate plan and explore strategies for protecting your assets. Contact us today.

About the author

Brady is the owner of Ramsay & Associates. He specializes in financial statement preparation and personal, fiduciary and corporate tax and accounting.

His professional experience includes seven years' experience for local and national CPA firms before joining Ramsay & Associates in 2006.

He has a Bachelor of Accounting degree from the University of Minnesota Duluth. He is a Certified Public Accountant, a member of the Minnesota Society of CPA's, an Eagle Scout, as well as an active volunteer in the community.

Inheriting property? Be aware of the basis consistency rules

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basis consistency rules

If you’re in line to inherit property from a parent or other loved one, it’s critical to understand the basis consistency rules. Current tax law, passed in 2015, provides that the income tax basis of property received from a deceased person can’t exceed the property’s fair market value (FMV) as finally determined for estate tax purposes.

Prior law

Before the 2015 tax law change, estates and their beneficiaries had conflicting incentives when it came to the valuation of a deceased person’s property. Executors had an incentive to value property as low as possible to minimize estate taxes, while beneficiaries had an incentive to value property as high as possible to minimize capital gains, if they decided to sell the property.

Current law

The 2015 law requires consistency between a property’s basis reflected on an estate tax return and the basis used to calculate gain when it’s sold by the person who inherits it. It provides that the basis of property in the hands of a beneficiary may not exceed its value as finally determined for estate tax purposes.

Generally, a property’s value is finally determined when:

  • Its value is reported on a federal estate tax return and the IRS doesn’t challenge it before the limitations period expires,
  • The IRS determines its value and the executor doesn’t challenge it before the limitations period expires, or
  • Its value is determined according to a court order or agreement.

But the basis consistency rule isn’t a factor in all situations. The rule doesn’t apply to property unless its inclusion in the deceased’s estate increased the liability for estate taxes. So, for example, the rule doesn’t apply if the value of the deceased’s estate is less than his or her unused exemption amount.

Beware of failure-to-file penalties

Current law also requires estates to furnish information about the value of inherited property to the IRS and the person who inherits it. Estates that fail to comply with these reporting requirements are subject to failure-to-file penalties.

An accurate valuation is key

The basis consistency rules can be complex. The bottom line is that if you inherit property from a person whose estate is liable for estate tax, it’s important that the property’s value be accurately reported on the deceased’s estate tax return. Contact us with any questions.

About the author

Brady is the owner of Ramsay & Associates. He specializes in financial statement preparation and personal, fiduciary and corporate tax and accounting.

His professional experience includes seven years' experience for local and national CPA firms before joining Ramsay & Associates in 2006.

He has a Bachelor of Accounting degree from the University of Minnesota Duluth. He is a Certified Public Accountant, a member of the Minnesota Society of CPA's, an Eagle Scout, as well as an active volunteer in the community.