There are many reasons why someone may choose not to receive an inheritance. Below, we outline some of the common reasons people disclaim an inheritance and the key steps involved in doing so.
Why Might You Disclaim Your Entitlement?
There are several reasons why you may choose to disclaim a gift:
- Tax Implications: Accepting a gift may push you into a higher tax bracket, increasing your tax liability.
- Impact on Government Benefits: If you currently receive government support or a pension, accepting a gift could reduce or even eliminate these benefits.
- Preserving Relationships: In some cases, declining a gift can help maintain family harmony, especially if the relationship with the testator was complicated.
- Personal Reasons: Every situation is unique, and you may have other reasons for disclaiming a gift.
If you are considering this option, it is important to act before the assets are distributed and received by the beneficiaries. Once you have formally rejected, also known as disclaimed, your inheritance, the decision is final and cannot be reversed.
How to Disclaim Your Entitlement
To disclaim successfully, you must take the following steps:
- Act promptly: You can disclaim as soon as you become aware of your entitlement (usually after the testator passes), but before accepting any benefit.
- Formally notify the trustee: This is typically done through an unconditional Deed of Disclaimer, which must clearly state that you are disclaiming the gift.
- Understand the limits: The Deed must disclaim the entire gift; partial disclaimers are not permitted. Once signed, it cannot be revoked.
What Happens After You Disclaim Your Entitlement?
Once a disclaimer is executed:
- The gift is redistributed among the other beneficiaries according to the will.
- Financial consequences may still arise, such as Capital Gains Tax or Stamp Duty, if disclaimed after the end of the income year.
- Your eligibility for government benefits may still be affected if the value of the disclaimer exceeds annual thresholds.
- You will not have control over who ultimately receives the portion you disclaimed. It is a common misconception that you can control this.
Disclaiming an inheritance can have lasting financial and personal consequences. It’s important to seek professional advice before proceeding.
If you are considering disclaiming your inheritance or want to understand the implications, contact us for guidance 02 9150 6991, ad***@**********om.au.