By: Barry E. Haimo, Esq.
October 6, 2015
Estate Planning: You Shouldn’t Always Accept an Inheritance
From disco albums to boring books to ugly sweaters—we’ve all politely accepted gifts we don’t want at some point in our lives.
But while graciously accepting an unwanted gift might not do much harm, accepting an unwanted inheritance may end up causing you costly problems.
While many beneficiaries are happy to receive inheritances, there are many reasons for preferring to disclaim an inherited gift. The most common reason is to avoid taxes, but there are many situations where disclaiming an inheritance may be the best course of action for you and your loved one.
Below, you can read the story of the Montague family, whose fairly common experience illustrates one reason you may want to think twice before accepting an inheritance.
An Unwelcome Gift
Though Adam Montague had lived in Florida for most of his adult life, he always considered Minnesota to be his true home.
“You can take the man out of the wilderness, but you can’t take the wilderness out of the man!” he was fond of saying. Adam often complained about Florida’s crowded beaches, busy roads, and sunny weather, maintaining that endless sunshine was bad for the character and grumbling that he was sick of seeing men in speedos.
But Adam’s software development company was based in Florida, and he had been relocated to the company headquarters after being promoted to the board. It was too lucrative an opportunity to give up. Still, Adam visited his home state of Minnesota every chance he got and—true to his word—never really left the wilderness.
He saved up for years before buying land in the woods of rural western Minnesota, and spent another two years building his dream vacation home. Adam would spend holidays and vacation time up in the cabin hunting, fishing, and trying to instill a love of the great outdoors in his son, Joseph.
Joseph wanted to oblige his father—he really did. But he was terrible when it came to “manly” and “outdoorsy” activities. Growing up, he would always accompany his father on trips to the Minnesota cabin, but spend the bulk of his time in his room working on his standup comedy routine.
After Joseph left home, he was able to get out of trips to the cabin more easily. He often politely turned down his father’s suggestions that they spend the weekend in Minnesota, citing a comedy gig he was performing at or a prior engagement with his fiancé.
Though he never came right out and said it, Joseph thought he had made it clear that he didn’t share his father’s love of the outdoors or treasure the family cabin. So when Adam died at age 82, it came as a surprise to Joseph when he learned that his father had bequeathed the cabin to him in his will.
Joseph loved his father and wanted to honor his name, so he felt obligated to accept the gift. What he hadn’t realized was that his father’s had incurred large debts in order to acquire and maintain the cabin. In the end, Joseph was left with a real estate property in which he had no interest and the indirect responsibility to pay off sizeable claims from creditors. Ever the loyal son, Joseph settled the debts that his father owed. However, as an increasingly popular standup comedian with a wife and a baby on the way, Joseph had little time to visit or care for the cabin. Soon, his father’s beloved cabin began to deteriorate, which led to more problems.
Joseph hadn’t realized he had the option of disclaiming the property that his father had left him. By doing so, he could have avoided the expenses of ownership and paying off debts, and passed the property onto another heir who would have appreciated the gift. The process of disclaiming his father’s cabin would have been relatively simple, involving a brief and simple document drafted with the help of a seasoned estate planning attorney.
Of course, the fault is not entirely Joseph’s. Joseph’s father, Adam, could have helped to avoid this undesirable situation if he had taken the time to discuss his estate plans with his son. In an open and upfront discussion, Adam could have expressed his plans and given his son a chance to voice his opinions. Communication is always critical. Together, the two of them might have decided to leave the property to another family member or friend who would have truly appreciated it.
For issues and concerns with inheritance, talk to an experienced estate planning attorney. Your lawyer can help you to mediate a discussion about estate planning with your family so you can be sure that you leave assets and property to the right beneficiaries. Alternatively, if you are in a situation where you have been left undesired property or assets, your attorney can help you disclaim the inheritance so you can save on income and property taxes, avoid the costs of ownership, or pass the inheritance on to a more suitable heir.
Barry E. Haimo, Esq.
Strategic Planning With Purpose