Real question: If someone is named as a beneficiary in a will, are they legally required to accept the property and/or assets from the estate?
Hypothetical example: Child is planning on filing for bankruptcy but hasn’t yet, parent unexpectedly dies. Parent names child as beneficiary, child stands to inherit substantial assets but not nearly enough to cover debts. Inheritance would be completely eaten up by creditors. Child’s children (parent’s grandchildren) are specifically named as sucessor beneficiaries in parent’s will. Child would rather disavow (disown? renounce? not take?) their inheritance and rather let it pass directly from parent’s estate to the grandchildren. Is child REQUIRED to take their inheritance?
(General answers appreciated, actual legal advice not sought, if the answer(s) depend on state law let’s pick Pennsylvania just for kicks and giggles.)
In my experience, no. It’s possible to “disclaim” a portion of an inheritance, which allows that portion to pass to whoever is next in line. In your hypothetical case, the child could disclaim the inheritance, and the assets would pass to the next person in line, probably the grandchildren.
For example, when my Mom’s parents died, their will left some money to my Mom. Mom didn’t need all the money and she wanted us kids to have the use of it instead of waiting to inherit it from her. She disclaimed some of the money, and the executor transferred it to the kids. My mom paid taxes on the portion of the inheritance that she accepted, and us kids paid taxes on the portion that passed to us.
No. However, it’s either all or nothing. One can’t reject one asset and not all the others.
Assets are distributed according to the donor’s wishes as if the intended recipient had already passed away.
I knew a 84 year-old woman who was receiving Medicade. She refused to inherit property from her brother in order to avoid the state taking the lion’s share.
Contrary to cwthree, there are no inheritance taxes in the USA. Gift and estate taxes are paid by the donor, not the recipient.
Since the central question seems to have been answered, here’s a tangential comment: If passing up on the gift or inheritance happens within certain time frames before or after a bankrupcty, it’s entirely possible that the courts will insist on using the money/assets to pay creditors.
But the recipients do pay some tax. I disclaimed my brother’s estate in favor of my kids, and they had to pay federal income tax on the cash they received.
Brother’s house was also part of the estate and the kids shared the proceeds from the sale. I don’t know what the tax liability was on that money.
Yes - it would be considered a fraudulent transfer, and would easily be avoided by the Trustee. There’s a two year lookback period under the US Code, but in Indiana, we have a statute that gives us a four year lookback period.
According to about.com, there are 7 states that collect inheritance taxes, 18 that get estate taxes, and two do both. It also says there is a federal inheritance tax that really only comes into play after $5 millionish. So I’m guessing you don’t claim the inheritance on your income tax return, which is why the IRS site is quoted with the above, but you still pay it independently.
But even that is the federal ESTATE tax. It’s paid by the estate before transferring the assets to the recipient. It’s all part of the work the executor does to pay off debts, dispose of property, etc. etc. before closing the estate. The recipient doesn’t have to do anything, federal tax wise - he/she just gets money from the estate, that taxes have already been paid on.
Synopsis: Police Department insists wrongfully arrested character released from jail immediately claim the gun wielded by his mugger, as botched records show it to be his gun. Character has no holster on his person or concealed carry permit, and is pretty sure walking out of the building with the gun in his hand will give the police an excuse to re-arrest him. His solution: declare the gun to be a personal gift to the officer trying to make him accept it.
While I certainly expect this level of disinterested malice from police officers in real life, I’m really curious as to whether what’s being pulled could be made to legally stick, in either direction.
You can’t gift something unless you own it - so you cannot regift “your” firearm. However, the police cannot force you to accept an item. (It would make an interesting scene if it got to court. “I refused to accept it so the policeman picked up the gun and jammed it into my pocket”). Courts are not stupid and do not (usually) rely on a blinders-on single-minded literal reading of the law when it obviously is being misapplied.
IIRC, in the USA there is capital gains payable on the increased value between what the house (or other asset) was bought for, and what it sold for, minus improvements. It is payable by the estate.
If grandson Joe wants to keep the family house, and the estate does not allow for paying the tax (“Joe gets house, Sally gets the cash in the bank account”) then Joe can either allow the executor to sell the house and take the net proceeds after taxes, or take the house, and pay the capital gains based on a fair appraisal of market value out of his pocket. Maybe this i what you are thinking of.
It’s not just fraudulent transfer. The law also allows “transactions in anticipation of bankruptcy” to be reversed by the judge. If Joe’s Carpets looks like he’s going bankrupt, and Sam’s carpet wholesaler says “OK, pay me now for all the carpet I’ve fronted you or else I’ll send a truck to take away the half of your stock I gave you on credit” then the other creditors in bankruptcy a few months later can go after Sam to have that transaction reversed, the money goes back into the pot to be split fairly.
In Canada IIRC the rule is about transactions up to 6 months before filing? So you can’t sell your house or car to your kid for $1 so that the creditors can’t chase take them.
You can’t contest a will without valid grounds, and “the person who gets it doesn’t want it” is not grounds to overturn a valid freely made will.
In the UK I believe you can. I don’t know the exact procedure but from personal (well, family) experience you can do something called filing a deed of variation and make it so it was gifted to someone else.
I can assure you that the kids didn’t pay any tax on the cash.
However, estates are complicated things. There are taxes paid all over the place. You might be thinking of taxes that the kids paid on earnings (such as interest) while the cash was in the trust. It’s perhaps splitting hairs, but there is a distinction between paying tax on the inheritance, and paying tax on the *earnings *from the inheritance.
I’m running my dad’s estate, and I can say that in Indiana, if you inherit above $250,000.00, you will be hit with a tax on those amounts above that number. A tax paid by the heir.
I don’t remember what the rate is, since I’m won’t be getting that much. And, certain things are exempt, like life insurance (which runs outside the Estate) and certain types of retirement accounts (like an inherited IRA).
They did indeed pay federal income tax on it, but now that I think about it (memory returns), the cash came from my brother’s 401-k, from his job. He hadn’t started collecting yet – the money was his retirement fund.
That type of money might be treated differently than money from a bank account or life insurance.