Disclaiming Gifts

No one is compelled to accept a gift that is given to them, and that principle extends all the way to receiving a gift on the death of another person. The rejection of a gift resulting from the death of another is commonly called a “disclaimer” and the procedure for saying no varies on the type of gift and how it is being given to you.

Why would someone want to disclaim a gift in the beginning? – they could be:

• trying to avoid inheritance tax in foreign jurisdictions. This may be particularly relevant for beneficiaries who have a connection to the United States of America or United Kingdom;
• trying to avoid onerous conditions attached to the gift itself. For example, the gift is of shares or an interest in a company or business with substantial liabilities, or the gift could be of real estate that requires ongoing maintenance that the beneficiary does not want or need;
• trying to meet their own obligations under a contract with another party;
• trying to avoid unnecessary conflict or dispute if the gift giver and beneficiary were estranged.

There is no requirement that a disclaimer must be in a prescribed form or be approved by a Court to be valid, and indeed it can be made by deed, in some other written format, oral or inferred by action. However, what it does have to be is a total disclaimer of the beneficiary’s entitlement to that gift. Whilst a disclaimer cannot usually be revoked, it can be retracted if that beneficiary’s entitlement has not otherwise been dealt with, for example if the legal personal representatives have not yet relied on that disclaimer or substitute beneficiaries have not been informed.

If a beneficiary does not intend to accept a gift, it is important for them to take positive action because a beneficiary is presumed to accept the gift unless they indicate otherwise. So, it follows that a beneficiary who wishes to reject an inheritance must take positive action to disclaim their interest.

If the Will gives a beneficiary two or more separate gifts, the beneficiary can disclaim one or more of them. But where the gift is of residue, the beneficiary must disclaim all of it; they cannot choose to keep a portion of the residue and disclaim the remainder. It is also possible to disclaim a gift that is given to two or more beneficiaries as joint tenants if all joint tenants agree.

The rules described above also apply where the gift giver has died without a Will (known as an intestacy) and the assets are passing under the rules of intestacy. A person who disclaims an interest in an intestate estate will be treated as having predeceased the gift giver. However, if the disclaiming person has issue (i.e. lineal descendants), those issue may be entitled to take the share being disclaimed. This is relevant where the next of kin entitled to the intestate’s estate has predeceased the intestate but left issue who survive the intestate.

Should you wish to review your Will or have concerns regarding a gift in a Will please contact our Wills and Estates team for an appointment on 8525 2700 or click here to request an appointment.

Article written by Rebecca Exley
Photo by Tim Mossholder on Unsplash