895 / If a person refuses to accept an interest in property (a disclaimer), is he considered to have made a gift of the interest for federal gift tax purposes?

Not if he makes a qualified disclaimer. A “qualified disclaimer” is an irrevocable and unqualified refusal to accept an interest in property created in the person disclaiming by a taxable transfer made after 1976. With respect to inter vivos transfers, for the purpose of determining when a timely disclaimer is made (see condition (3) below), a taxable transfer occurs when there is a completed gift for federal gift tax purposes regardless of whether a gift tax is imposed on the completed gift. Thus, gifts qualifying for the gift tax annual exclusion are regarded as taxable transfers for this purpose.¹ Furthermore, a disclaimer of a remainder interest in a trust created prior to the enactment of the federal gift tax was subject to the gift tax where the disclaimer was not timely and the disclaimer occurred after enactment of the gift tax.² In order to effectively disclaim property for transfer tax purposes, a disclaimer of property received from a decedent at death should generally be made within nine months of death rather than within nine months of the probate of the decedent’s will.³

In general, the disclaimer must satisfy the following conditions: (1) the disclaimer must be irrevocable and unqualified; (2) the disclaimer must be in writing; (3) the writing must be delivered to the transferor of the interest, his legal representative, the holder of the legal title to the property, or the person in possession of the property, not later than nine months after the later of (a) the day on which the transfer creating the interest is made, or (b) the day on which the disclaimant reaches age 21; (4) the disclaimant must not have accepted the interest disclaimed or any of its benefits; and (5) the interest disclaimed must pass either to the spouse of the decedent or to a person other than the disclaimant without any direction on the part of the person making the disclaimer.⁴ Acts indicative of acceptance include: (1) using the property or the interest in property; (2) accepting dividends, interest, or rents from the property; and (3) directing others to act with respect to the property or interest in property. However, merely taking delivery of title without more does not constitute acceptance.⁵ A person cannot disclaim a remainder interest in property while retaining a life estate or income interest in the same property.⁶ Under 2010 TRA, a disclaimant has up to nine months after the enactment of 2010 TRA (12/17/10) to disclaim property passing from a decedent who died between January 1, 2010 and December 16, 2010.

If a person makes a qualified disclaimer, for purposes of the federal estate, gift, and generation-skipping transfer tax provisions, the disclaimed interest in property is treated as if it had never been transferred to the person making the qualified disclaimer. Instead it is considered as passing directly from the transferor of the property to the person entitled to receive the property as a result of the disclaimer. Accordingly, a person making a qualified disclaimer is not treated as making a gift. Similarly, the value of a decedent’s gross estate for purposes of the federal estate tax does not include the value of property with respect to which the decedent or his executor has made a qualified disclaimer.⁷

In the case of a joint tenancy with rights of survivorship or a tenancy by the entirety, the interest which the donee receives upon creation of the joint interest can be disclaimed within nine months of the creation of the interest and the survivorship interest received upon the death of the first joint tenant to die (deemed to be a one-half interest in the property) can be disclaimed within nine months of the death of the first joint tenant to die, without regard to the following: (1) whether either joint tenant can sever unilaterally under local law; (2) the portion of the property attributable to consideration furnished by the disclaimant; or (3) the portion of the property includable in the decedent’s gross estate under IRC Section 2040. However, in the case of a creation of a joint tenancy between spouses or tenancy by the entirety created after July 13, 1988 where the donee spouse is not a U.S. citizen, a surviving spouse can make a disclaimer within nine months of the death of the first spouse to die of any portion of the joint interest that is includable in the decedent’s estate under IRC Section 2040. Also, in the case of a transfer to a joint bank, brokerage, or other investment account (e.g., mutual fund account) where the transferor can unilaterally withdraw amounts contributed by the transferor, the surviving joint tenant may disclaim amounts contributed by the first joint tenant to die within nine months of the death of the first joint tenant to die.⁸

For purposes of a qualified disclaimer, the mere act of making a surviving spouse’s statutory election is not to be treated as an acceptance of an interest in the disclaimed property or any of its benefits. However, the disclaimer of a portion of the property subject to the statutory election must be made within nine months of the decedent spouse’s death, rather than within nine months of the surviving spouse’s statutory election.⁹

A power with respect to property is treated as an interest in such property.¹⁰ The
exercise of a power of appointment to any extent by the donee of the power is an acceptance of its benefits.¹¹

A beneficiary who is under 21 years of age has until nine months after his 21st birthday in which to make a qualified disclaimer of his interest in property. Any actions taken with regard to an interest in property by a beneficiary or a custodian prior to the beneficiary’s 21st birthday will not be an acceptance by the beneficiary of the interest.¹² This rule holds true even as to custodianship gifts in states which provide that custodianship ends when the donee reaches an age below 21.¹³

It is also important to check applicable state law to make certain that the disclaimer meets the requirements and is effective.