When a client sadly passes away, financial advisors often leap into action. In part it’s simply to provide good service and support to a grieving family. In many cases, there’s also a business interest to engage with next generation heirs and establish or deepen a relationship, in the hopes of continuing to serve the family after the death of the original client. In either case, “proactivity” becomes the guiding principle of engagement. Except the reality is that when it comes to estate planning scenarios, there is actually such thing as being too proactive… because the actions of settling an estate and distributing assets can unwittingly negate the ability of beneficiaries to subsequently engage in disclaimer planning.
In this guest post, David Haughton, an attorney and VP of Engagement for Hargrove MSO, explores the benefits of disclaimer planning, and how the unique requirements for executing a qualified disclaimer, including and especially that the beneficiary not have “accepted” the inheritance, can run directly contrary to traditional proactive service for estate heirs.
The basic principle of executing a disclaimer is fairly straightforward: a beneficiary can choose to not accept an inheritance, and by doing so in a qualified manner, is simply deemed as never having inherited the asset in the first place, allowing it to flow instead to the next (i.e., contingent) beneficiary. For those facing estate tax exposure, this is much more appealing than simply receiving the inheritance and re-gifting it to another beneficiary (and using a portion of their own lifetime gift and estate tax exemption). And even for the wide swath of those without Federal estate tax exposure, disclaimer planning can still be relevant in scenarios from shifting a pre-tax IRA to someone with a more favorable tax rate to draw post-death Required Minimum Distributions, to shifting after-tax assets to someone who may receive better step-up in basis treatment in the future.
