Intro to Estate Disclaimers in Texas

I recently had a client whose case involved a somewhat unusual issue. For reasons that we won’t get into here, this client was hesitant about claiming the inheritance to which the client would be entitled in an heirship or probate proceeding. Now, I know what you’re thinking. “An inheritance sounds great, why on earth would I want to disclaim it?” – and for most people, this is generally right. They can’t imagine disclaiming an inheritance. But, there may be good reasons for it. Again, without getting into the particulars, there are many reasons that someone might want to disclaim an inheritance, including:

• Perhaps the heir is already very wealthy – such an heir may wish to “move the inheritance down a generation” for tax-minimization or tax-planning reasons as part of an estate plan (why pay double inheritance taxes when the wealth moves down twice?)
• Perhaps the heir is already well-off enough (if not “wealthy” then let’s say “comfortable”) and the deceased’s property is too much of a headache (for example, if the deceased was a hoarder with a badly contaminated house that isn’t worth much, and an overall tangled estate, it may make more sense for an heir to just walk away and not mess with it)
• Perhaps there were personal issues between the heir and the deceased, and the heir wishes to disclaim because he or she wants nothing to do with the deceased or his/her money
• Perhaps the would-be heir is on a spiritual journey (Ram Das declined his inheritance)
• Perhaps the estate is underwater (debts exceed assets), or the real estate has significant liens attached to it, that would cause problems for the heir from an asset-protection perspective
• Perhaps the property of the estate has uncertain or “scary” liabilities attached, for example: environmental contamination liabilities, tax liabilities, or unclear and uncertain personal injury liabilities
• Perhaps a piece of real estate is dilapidated and in disrepair, such that it will incur only liabilities, or significant repair expenses in the future, etc., significantly greater than the value of the property

  So let’s stipulate that, for whatever reason, you have determined to disclaim your inheritance. What now? Well, first and foremost, call a quality probate attorney. Correctly filing a disclaimer (and correctly understanding the consequences of that disclaimer) can be a complex matter. Your attorney will help you file a disclaimer by ensuring that it complies with the Texas Uniform Disclaimer of Property Interests Act. (Chapter 240 of the Texas Property code) In order for a disclaimer of an interest created by a Will or heirship (intestacy) to be valid, there are five requirements that must be met:

1. The disclaimer must be in writing
2. The disclaimer must unambiguously disclaim, refuse, and decline to accept an interest in or power over the property
3. The disclaimer must sufficiently describe the interest or power disclaimed
4. The disclaimer must be signed by the person making the disclaimer
5. The disclaimer must be delivered to the estate’s personal representative or executor; if there isn’t one, the disclaimer must be filed with the relevant county clerk

  Now, if you’re clever, you might have read item #3 and said to yourself “hmmm… could I disclaim part of an inheritance but not the other part?” and the answer is… yes! So, maybe “I disclaim any interest in the biohazard hoarder house over there, but I still want to claim my share of the gold bars in the safety deposit box”… or “I disclaim all of the valuable stuff, but I do want my share of <sentimental thing>.” Or any number of other variations you could come up with. Again, it is extremely, extremely important, before attempting something like a partial disclaimer with an heirship or probate proceeding, to consult your attorney and tax advisor. First, there are no do-overs with this kind of thing. Second, if your objectives are inheritance tax-related, it’s extremely important to do the calculations precisely and correctly. Third, and relatedly to each of the foregoing, there can be unforeseen consequences that result from a disclaimer. Another very quick note on timelines for disclaimer. The Texas Uniform Disclaimer of Property Interests Act doesn’t place a time restriction or deadline to file a disclaimer (i.e., file a disclaimer within X, or you lose the chance). The prior law, however, did have a time restriction. For cases that might fall under the prior statute, it’s especially important to consult an attorney to determine whether the disclaimer will be valid. Finally, you might also have wondered why people don’t just disclaim property that has major liabilities attached to it all the time, as a method of avoiding “spillover” liability. Well, you can only disclaim (as pointed out above) interests created by a Will or heirship.   Until next time, folks.