Can You Decide Not to Accept an Inheritance?

A woman choosing not to accept an inheritance.

It might seem like an unlikely scenario: someone learns that they are entitled to an inheritance, and they decide not to accept it. Can you not accept an inheritance if you are named in a will or you are an heir under the law? The answer is yes, and the process is referred to in legal terms as “disclaiming an inheritance.”

While it may not be a terribly common occurrence, disclaiming an inheritance happens more often than you might think. And if you someday find yourself in a situation where you decide to not accept an inheritance, you need to understand the legal and tax implications of your decision.

Why Would Someone Not Accept an Inheritance?

Most people, of course, are grateful to receive an inheritance from the estate of a loved one. The decision to not accept an inheritance is rarely due to a rejection of the person who has died. There are many reasons to disclaim an inheritance that make perfect sense once you think about them:

To Avoid Estate, Gift, or Income Tax Consequences

Managing tax consequences is probably the most common reason to not accept an inheritance. An inheritance, particularly a large one, can have negative tax consequences for a recipient. It may leave their own estate vulnerable to estate tax after their death, or bump them into a higher tax bracket during life.

Disclaiming the inheritance can allow you to bypass those consequences, and allow the inheritance to pass to someone else—potentially the person(s) to whom you would want to give the assets, like your own children. Not accepting the inheritance allows the assets to pass to whoever

To Protect Assets From Creditors

One common reason to disclaim an inheritance has to do with shielding assets from creditors. A creditor can’t seize assets that you “might inherit” or “will probably inherit.” But if you have an immediate right to assets, those are fair game to creditors seeking payment, especially if they already have a judgment against you. By disclaiming your inheritance and letting it pass to someone else, those funds never come into your hands, legally speaking—so they can’t fall into your creditors’ hands, either.

To Avoid Debt or Expense That is Associated with an Asset

Some inherited assets are, at best, a mixed blessing. One example is inheriting a house with a mortgage. If you accept the house and want to keep it, you need to be able to pay the mortgage. If that does not make financial sense for you, but you would prefer the house to stay in the family, it might be wiser to disclaim the inheritance and let another family member take it. Or, if the property needs significant repair or there are back taxes, keeping it could end up costing you money.

To Preserve Eligibility for Certain Government Benefits

Many Americans, especially those with special needs or disabilities, rely on Medicaid and other means-tested government benefits. “Means-tested” means that eligibility for the benefit depends on the beneficiary’s income and assets; receiving even a small inheritance can disrupt eligibility.

If the beneficiary (or their legal guardian) disclaims the inheritance, they can keep receiving their government benefits; if the inheritance then passes to another close relative, that person could create a special needs trust or supplemental needs trust for the disabled person’s benefit. That way, the person who disclaimed the inheritance could still benefit from it without jeopardizing needed benefits.

To Ensure Equity or Correct an Error

Most people intend to be equitable in distributing their estate, but things don’t always go as planned. For example, a person might make a will leaving their two children specific property of approximately equal value. However, at the time of their death, some property might have appreciated in value while others have declined. To give effect to the intent of the deceased, one child might disclaim certain assets so that their sibling could receive an equal inheritance.

Though it may be hard to imagine, not accepting an inheritance can be a smart financial move, and can even protect family harmony. But disclaiming an inheritance involves more than just walking away; there are specific steps you must take in order to not accept an inheritance.

What to Know if You Decide to Disclaim an Inheritance

Now that we’ve answered the question “Can a person not accept an inheritance?” It’s time to address the issue of what happens when you do refuse an inheritance. If you are thinking about disclaiming an inheritance, there are certain things you should be aware of.

First of all, you only have a limited amount of time in which to disclaim an inheritance, typically nine months after the death of the deceased. Also, if you accept any benefit from an inherited asset, you can no longer disclaim it. For instance, if you inherit stocks and accept a dividend payment, you can no longer disclaim the inheritance of that asset.

Another critical detail is that if you decide not to accept an inheritance, you don’t have any say in who does receive it. Sometimes, people specify in their will what they want to happen if a beneficiary disclaims an inheritance. For instance, the inheritance might then go to the person who would have received it if the beneficiary had died before the person leaving the inheritance.

If there are no such provisions, or if there was no will, the inheritance will pass according to state law, treating the person who disclaimed the inheritance as if they had predeceased the giver. That could mean that an inheritance you disclaim goes to your child, a sibling, a parent, a more distant relative, or even a charity or other organization. Therefore, you should always be certain of what will happen to your inheritance before you disclaim it. Once you disclaim an inheritance, you cannot reclaim it.

How to Disclaim an Inheritance

To disclaim an inheritance in Ohio, you must file a written disclaimer in the probate division of the Court of Common Pleas. You must also provide a copy to the personal representative of the estate. In addition to the nine-month deadline referenced above, a disclaimer must be filed before the personal representative settles the estate.

In addition to the above requirements, if the inheritance you are disclaiming includes real estate, you must also file a copy of your disclaimer form with the county recorder for the county in which the real estate is located.

To learn more about refusing an inheritance in Ohio, or to get help disclaiming an inheritance, contact Gudorf Law Group to schedule a consultation.

Categories: Inheritance