Estate planning in Maryland involves many legal tools and strategies to ensure assets are distributed according to one’s wishes. One such tool is the Disclaimer of Interest, which allows an individual to renounce their right to an inheritance or property interest. Understanding how this law works is essential for effective estate planning and asset protection.
What Is a Disclaimer of Interest?
A Disclaimer of Interest is a legal declaration in which a person refuses to accept an inheritance, bequest, or beneficiary designation. The disclaimed assets then pass as if the person had predeceased the decedent. This can be a strategic move for estate planning, tax management, and creditor protection.
Key Features of a Disclaimer of Interest in Maryland
- Must be in writing
- Must be signed by the disclaiming party
- Must be filed within a certain time frame (typically within nine months of the decedent’s death or the date of asset transfer)
- Is irrevocable once executed
- The disclaimant cannot benefit directly or indirectly from the disclaimed asset
Reasons to Use a Disclaimer of Interest
1. Estate Tax Planning
A disclaimer can help reduce estate tax liability by passing assets to a lower tax bracket beneficiary. For example, if an estate is valued above the federal estate tax exemption, disclaiming assets could prevent unnecessary tax burdens.
2. Creditor Protection
If an heir has outstanding debts or is facing lawsuits, disclaiming an inheritance may protect the assets from being seized by creditors. The property then passes to the next rightful heir, ensuring it remains within the family.
3. Medicaid and Government Benefits
Receiving an inheritance can disqualify individuals from Medicaid, Supplemental Security Income (SSI), or other government assistance programs. By disclaiming the inheritance, they can remain eligible for necessary benefits.
4. Family Asset Planning
A beneficiary may wish to redirect assets to another family member, such as a child or grandchild, without triggering a taxable gift. Instead of receiving and then gifting the asset, disclaiming allows for direct transfer without tax consequences.
Maryland Disclaimer of Interest Law: Legal Requirements
In Maryland, disclaimers are governed by the Maryland Uniform Disclaimer of Property Interests Act (MD Code, Estates & Trusts § 9-201 et seq.). To be legally valid, a disclaimer must meet the following requirements:
1. Written and Signed Disclaimer
The disclaiming party must create a clear, written document stating their intent to disclaim the asset. It must be signed and dated by the individual.
2. Timely Filing
The disclaimer must generally be filed within nine months of the decedent’s passing. However, if the disclaimant is under the age of 21, the deadline extends to nine months after their 21st birthday.
3. No Prior Acceptance of the Asset
The individual cannot accept or benefit from the property before disclaiming it. For instance, if they have already withdrawn funds from an inherited IRA or lived in an inherited house, they can no longer disclaim it.
4. Proper Filing Location
The disclaimer should be filed with:
- The personal representative (executor) of the estate
- The probate court handling the estate
- Any relevant financial institutions, if the asset is held in an account
Potential Risks and Consequences of Disclaiming an Inheritance
While disclaiming an interest can provide financial and strategic advantages, it also comes with risks that must be carefully considered before making a final decision.
1. Loss of Control Over the Asset
Once an asset is disclaimed, the disclaimant has no control over its distribution. It follows the terms of the will, trust, or intestacy laws, which may not always align with their intentions. If there is no clear contingent beneficiary named in the will, the asset could pass to an unintended recipient under Maryland’s intestacy laws.
Additionally, if the disclaimant had hoped to redirect the asset to a specific person, they must understand that disclaiming does not allow them to choose where it goes.
2. Unexpected Tax Consequences
Although disclaiming can help with tax planning, failing to understand the broader tax implications could lead to unintended consequences. For instance, if an inheritance is disclaimed and passes to a different beneficiary, that new recipient may face estate tax liabilities or increased income taxes.
Additionally, disclaiming an asset does not necessarily remove it from consideration for Medicaid eligibility or other financial assessments. Without proper planning, a disclaimer could inadvertently create new financial burdens for the estate or other beneficiaries. Consulting an estate planning attorney in Maryland is crucial to avoid costly mistakes.
3. Impact on Heirs and Beneficiaries
A disclaimer could alter the expected inheritance structure, potentially causing family disputes or legal challenges. If other heirs were relying on the disclaiming party to accept and manage an inheritance, they may be caught off guard by the decision. Additionally, some beneficiaries may perceive the disclaimer as a manipulation of estate distribution, particularly if it results in a greater share for another family member.
In cases where minor children or incapacitated heirs are involved, a disclaimer could complicate guardianship arrangements or require court approval, adding delays and legal expenses. To prevent misunderstandings, discussing potential disclaimers with family members and an experienced attorney beforehand is advisable.
How to File a Disclaimer of Interest in Maryland
If you wish to disclaim an inheritance in Maryland, follow these steps:
- Consult an Estate Planning Attorney – Before filing a disclaimer, seek legal advice to understand its impact on your financial situation.
- Draft a Written Disclaimer – Work with an attorney to prepare a formal disclaimer document.
- File the Disclaimer Properly – Submit the disclaimer with the probate court and provide copies to the personal representative and any financial institutions involved.
- Keep Records – Maintain copies of the disclaimer for your personal records in case any disputes arise.
Contact Blackford & Flohr for Expert Estate Planning Advice
Navigating Maryland’s Disclaimer of Interest law requires a clear understanding of estate planning regulations and tax implications. At Blackford & Flohr, our experienced estate planning attorneys in Maryland can help you make informed decisions regarding your inheritance and financial future. Contact us to get started.
