Wills and Trusts

Wyatt, Tarrant & Combs, LLP

Late Disclaimer OK: Disclaimer within Nine Months of Awareness

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In PLR 201334001 the IRS determined disclaimers were timely on the following facts:

Grantor created Trusts several years before his death on Date 1, a date before January 1, 1977, for the benefit of the lawful lineal descendants of his daughter (Daughter), per stirpes. Daughter’s son, Grandson is the current beneficiary of Trusts. Upon the death of Grandson, Grandson’s son (Taxpayer) will be entitled to income distributions from Taxpayer’s per stirpital share of Trusts. The income distributions will continue until the earlier of Taxpayer’s death or the perpetuities date. Upon termination of each of the Trusts, any remaining trust property will be distributed to Taxpayer and Taxpayer’s brother, per stirpes.

Taxpayer, who is over 18 years of age, represents that Taxpayer learned of the transfers creating his interests in Trusts on Date 2. Taxpayer further represents that he had no knowledge that he possessed any interest in Trusts, prior to Date 2. Taxpayer proposes to execute and timely file and deliver a written disclaimer to the trustees for each of Trust 1, Trust 2, Trust 3, and Trust 4, on or before Date 3, stating that he irrevocably, unconditionally and without qualification, disclaims and refuses to accept any interest that would otherwise pass to Taxpayer under the relevant provisions of Trusts. The disclaimers will be valid under Statute 1 and Statute 2. Date 3 is a date occurring not more than nine months after Date 2.

The ruling states:

Section 25.2511-1(c)(2) of the Gift Tax Regulations provides, in relevant part, that, in the case of taxable transfers creating an interest in the person disclaiming made before January 1, 1977, where the law governing the administration of the decedent’s estate gives a beneficiary, heir, or next-of-kin a right completely and unqualifiedly to refuse to accept ownership of property transferred from a decedent (whether the transfer is effected by the decedent’s will or by the law of descent and distribution), a refusal to accept ownership does not constitute the making of a gift if the refusal is made within a reasonable time after knowledge of the existence of the transfer. The refusal must be unequivocal and effective under the local law. There can be no refusal of ownership of property after its acceptance. In the absence of the facts to the contrary, if a person fails to refuse to accept a transfer to him of ownership of a decedent’s property within a reasonable time after learning of the existence of the transfer, he will be presumed to have accepted the property.

The U.S. Supreme Court has recognized that, under the predecessor to this regulation, an interest must be disclaimed within a reasonable time after obtaining knowledge of the transfer creating the interest to be disclaimed, rather than within a reasonable time after the distribution or vesting of the interest. Jewett v. Comm’r, 455 U.S. 305 (1982). The requirement in the regulations that the disclaimer must be made within a “reasonable time” is a matter of federal, rather than local law. Id. at 316. Whether a period of time is reasonable under the regulations is dependent on the facts and circumstances presented.

In this case, Taxpayer will execute each disclaimer within nine months of learning of the transfers creating his interests in each of Trust 1, Trust 2, Trust 3, and Trust 4. Accordingly, based upon the information submitted and the representations made, we conclude that Taxpayer’s proposed disclaimers of his interests in Trusts, if made on or before Date 3, will be made within a reasonable time after Taxpayer learned of the existence of the transfers under § 25.2511-1(c)(2). Furthermore, provided that Taxpayer’s disclaimers are valid under State law and assuming the other requirements of § 25.2511-1(c)(2) are met, Taxpayer’s disclaimer of his interests in Trusts will not be taxable gifts under § 2501.

Turney P. Berry
Louisville, Kentucky

Author: robmalinesq

I am an estate planning and probate attorney in Memphis, Tennessee.

Leave a reply. Please note that although this blog may be helpful in informing clients and others who have an interest in information privacy and security, it is not intended to be legal advice. The information on this blog also should not be relied upon to form an attorney-client relationship.

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