Key Takeaways
- Qualified disclaimer must be in writing within 9 months of transfer
- Disclaimant cannot have accepted any benefit or interest in the property
- Disclaimant cannot direct who receives the disclaimed property
- Treated as if disclaimant predeceased decedent for tax purposes
Disclaimer Planning
A qualified disclaimer is one of the most powerful and flexible postmortem estate planning tools available. It allows a beneficiary to refuse an inheritance in a way that is not treated as a gift for federal transfer tax purposes. When properly executed, the disclaimed property passes as if the disclaimant had predeceased the decedent, potentially providing significant estate tax savings and planning flexibility.
For CFP candidates, understanding disclaimer planning is essential because it offers a "second chance" to optimize estate plans after death--particularly when circumstances have changed since the original plan was created.
What Is a Qualified Disclaimer?
Under IRC Section 2518, a qualified disclaimer is an irrevocable and unqualified refusal to accept an interest in property. When the disclaimer meets all statutory requirements, the transfer is treated as if the property passed directly from the decedent to the ultimate recipient--the disclaimant is not treated as having made a gift.
Key Concept: A qualified disclaimer allows the disclaimant to redirect property without gift tax consequences because they are treated as never having received the property in the first place.
Five Requirements for a Qualified Disclaimer (IRC Section 2518)
All five requirements must be met for a disclaimer to be "qualified" under federal tax law:
| Requirement | Details |
|---|---|
| 1. Written | The disclaimer must be in writing and identify the property being disclaimed |
| 2. Timely | Must be delivered within 9 months of the transfer creating the interest (or 9 months after the disclaimant turns 21, if later) |
| 3. No Acceptance | The disclaimant cannot have accepted the property or any of its benefits before disclaiming |
| 4. No Direction | The disclaimant cannot direct who receives the disclaimed property |
| 5. Proper Passage | The property must pass without direction from the disclaimant to the decedent's spouse or a person other than the disclaimant |
Requirement 1: Written Disclaimer
The disclaimer must be:
- In writing (oral disclaimers are never valid for federal tax purposes)
- An irrevocable and unqualified refusal
- Signed by the disclaimant
- Delivered to the transferor, the transferor's legal representative, the holder of legal title, or the person in possession of the property
Best Practice: Use a formal disclaimer document that specifically identifies the property being disclaimed and recites compliance with Section 2518 requirements.
Requirement 2: The 9-Month Deadline
The disclaimer must be received by the appropriate party within 9 months of the later of:
- The date the transfer creating the interest is made (typically the date of death), OR
- The date the disclaimant reaches age 21
Critical CFP Exam Point: For interests created at death, the 9-month period typically begins at the date of death, not when the beneficiary learns of the inheritance or when probate is completed.
Minor Beneficiaries: A minor has until 9 months after turning 21 to disclaim--potentially over 21 years if the interest was created at birth.
Requirement 3: No Acceptance of Benefits
The disclaimant must not have accepted the interest or any of its benefits before making the disclaimer. Acceptance includes:
- Receiving income or dividends from the property
- Exercising any ownership rights
- Directing how property should be managed
- Using the property for personal benefit
- Pledging the property as collateral
Example: If a beneficiary receives and deposits a dividend check from inherited stock, they have accepted benefits and can no longer make a qualified disclaimer of that stock.
Requirement 4: Cannot Direct Who Receives Property
The disclaimant cannot specify who should receive the disclaimed property. The property must pass according to:
- The terms of the will or trust
- State intestacy laws (if no will)
- Beneficiary designation provisions
- Operation of law (such as right of survivorship)
Exam Trap: If a beneficiary says, "I disclaim my interest, and I want it to go to my daughter," this is NOT a qualified disclaimer--the beneficiary has directed the property's passage, making it a taxable gift.
Requirement 5: Property Must Pass Without Direction
As a result of the disclaimer, the interest must pass without any direction from the disclaimant to:
- The decedent's surviving spouse, OR
- A person other than the disclaimant
Special Rule for Surviving Spouses: A surviving spouse can disclaim property and still be the recipient of the disclaimed property through another provision (such as a residuary clause), as long as they did not direct it.
Why Would Someone Disclaim an Inheritance?
1. Estate Tax Optimization
Scenario: Funding the Bypass Trust A decedent's will leaves everything to the surviving spouse outright. After death, the family realizes it would be more tax-efficient to fund a bypass (credit shelter) trust with the applicable exclusion amount. The surviving spouse can disclaim a portion of the inheritance, which then passes to the bypass trust per the will's contingent provisions.
2. Generation-Skipping
Scenario: Skip to Grandchildren An adult child with a substantial estate inherits from a parent. Rather than receiving assets that will later be taxed again in the child's estate, the child disclaims, allowing the inheritance to pass directly to grandchildren.
3. Creditor Protection
Scenario: Beneficiary Has Creditors A beneficiary facing financial difficulties or lawsuits can disclaim to prevent the inheritance from becoming available to creditors. The property passes to the next beneficiary in line.
4. Preserve Government Benefits
Scenario: Special Needs Beneficiary A beneficiary receiving means-tested government benefits (SSI, Medicaid) might disclaim to avoid disqualification. The inheritance could then pass to a special needs trust or other family members.
5. Correct an Outdated Estate Plan
Scenario: Changed Circumstances Estate plans often become outdated due to changes in tax law, family circumstances, or asset values. Disclaimers allow beneficiaries to redirect assets post-death to achieve better outcomes.
Common Disclaimer Planning Scenarios
Scenario 1: Surviving Spouse Disclaims to Fund Bypass Trust
Facts: Harold dies with a $10 million estate. His will leaves everything to his wife, Margaret, outright. This qualifies for the unlimited marital deduction, so no estate tax is due at Harold's death. However, when Margaret later dies, her entire estate (including what she inherited from Harold) will be subject to estate tax.
Disclaimer Solution: Margaret disclaims $6.99 million (the applicable exclusion amount for 2025). Under the will's contingent provisions, the disclaimed amount passes to a bypass trust for Margaret's benefit. At Margaret's death, only her separate assets are taxed--the bypass trust passes tax-free to the children.
Tax Savings: By using Harold's applicable exclusion through the disclaimer, the family potentially saves over $2.7 million in estate taxes.
Scenario 2: Child Disclaims to Preserve Marital Deduction
Facts: Robert's will leaves 50% to his wife, Susan, and 50% to his adult son, Michael. Robert's estate is $20 million. Michael has a substantial estate of his own and doesn't need the inheritance.
Disclaimer Solution: Michael disclaims his 50% interest. Under the will's provisions, the disclaimed amount passes to Susan as the residuary beneficiary. Susan now receives 100% of the estate, qualifying for the unlimited marital deduction and deferring all estate tax until her death.
Scenario 3: Beneficiary Disclaims for Generation-Skipping
Facts: Carol inherits $3 million from her mother. Carol is 65, in good health, and has a taxable estate of $12 million. Her children are financially successful, but her grandchildren could benefit from the inheritance.
Disclaimer Solution: Carol disclaims the entire inheritance. Under the grandmother's will, disclaimed assets pass to the next generation. The $3 million goes directly to Carol's grandchildren, skipping Carol's estate entirely.
Partial Disclaimers
The IRC allows partial disclaimers--a beneficiary can disclaim a portion of an inheritance while accepting the rest. This provides significant planning flexibility.
Rules for Partial Disclaimers
- Must disclaim an undivided portion of the interest (e.g., 50% of all assets, not specific assets)
- Can disclaim specific assets if the bequest names them separately
- Can disclaim a fractional share
- Cannot cherry-pick appreciated assets to keep and depreciated assets to disclaim
Example of Valid Partial Disclaimer: "I disclaim 40% of my interest in the residuary estate." This is valid because it is an undivided percentage of the overall interest.
Example of Invalid Partial Disclaimer: "I disclaim the stock portfolio but accept the cash." This is invalid unless the will specifically bequeathed these as separate gifts.
Comparison: Qualified vs. Non-Qualified Disclaimer
| Feature | Qualified Disclaimer | Non-Qualified Disclaimer |
|---|---|---|
| Gift tax treatment | Not treated as a gift | Treated as a taxable gift from disclaimant |
| Who is transferor? | Original decedent | Disclaimant becomes the transferor |
| GST tax implications | Original decedent's generation | Disclaimant's generation |
| Estate inclusion | Not in disclaimant's estate | May be included in disclaimant's estate |
| Time requirement | Within 9 months | No time limit (but gift tax applies) |
Planning Tips for CFP Professionals
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Build Flexibility Into Estate Plans: Draft wills and trusts with contingent beneficiaries and bypass trust provisions that can be activated through disclaimers.
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Warn Against Premature Actions: Advise beneficiaries not to take any action with inherited assets until disclaimer planning has been considered.
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Document Carefully: Ensure disclaimers are properly drafted, delivered, and documented to meet IRS requirements.
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Consider State Law: While Section 2518 governs federal tax treatment, state law determines who receives disclaimed property. Ensure state disclaimer statutes are followed.
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Coordinate with Other Elections: Disclaimer planning often works in conjunction with QTIP elections, portability elections, and other postmortem decisions.
Martha's mother died on June 15, 2025, leaving Martha $500,000 in a brokerage account. Martha cashed a $2,500 dividend check from the account on July 1, 2025. On September 1, 2025, Martha decides she wants to disclaim the inheritance so it passes to her children. Can Martha make a qualified disclaimer?
David inherited $2 million from his father's estate. He wants to disclaim $1 million so it passes to a bypass trust for his mother's benefit. David tells the executor, 'I disclaim $1 million, specifically the Apple stock and the vacation home.' Is this a valid partial disclaimer?
Jennifer, age 19, is named as beneficiary of her grandmother's $300,000 IRA. Her grandmother died on January 10, 2025. By what date must Jennifer disclaim to meet the qualified disclaimer deadline?