If you stand to inherit millions of dollars, the first thought to cross your mind is most likely not going to be that you should give it up. That will not cross most people's minds at all. However, in some cases, giving up the inheritance is the wisest course of action.
If you are the beneficiary of a wealthy person's IRA, you might be the heir to millions of dollars. Most people would be foolish to give up any claim to that IRA, legally known as "disclaiming" it.
But what if you are already wealthy?
If you are already in a high income tax bracket, when you inherit an IRA you will have to take a required minimum disbursement every year and pay income tax on it at your tax rate.
On the other hand, what if another family member, such as a child, could inherit the IRA instead and pay a lower tax rate? In that case, it would make financial sense for you to disclaim the IRA.
This consideration was explained by Kiplinger's Retirement Report in a recent article titled "Surprising Reasons You Might Want to Give Up a Multi-Million-Dollar Inheritance."
The article mentions a few other reasons you might consider disclaiming an IRA, such as for estate tax purposes or out of a sense of charity.
The key is to disclaim an inheritance correctly, if that is the decision you make.
For example, you will need to do so in writing within a small window of time. Also, you cannot take any benefit from the IRA, or any other inheritance you might want to disclaim, before you disclaim it.
As the article also mentions, you should talk to an estate planning attorney about disclaiming an inheritance. He or she can help ensure that you are doing the right thing in disclaiming and, if yes, that you are doing so properly.
Remember: “An ounce of prevention is worth a pound of cure.” When making your estate plans or when probating an estate or administering a trust, do not go it alone. Be sure to engage a Cincinnati estate planning attorney.
For more information about estate planning, probate or trust administration in Cincinnati (and throughout the rest of Southwest Ohio) and to review free resources regarding estate planning, probate or trust administration, visit my website. If you have questions regarding this article or a particular legal matter, feel free to contact me at 513-399-PLAN (7526).
Reference: Kiplinger's Retirement Report (August, 2015) "Surprising Reasons You Might Want to Give Up a Multi-Million-Dollar Inheritance."