Refusing your Inheritance
For many people the prospect of receiving a gift in a Will is much appreciated but for others it can be unwelcome. There are a whole host of reasons why you are refusing your inheritance some personal, some practical and some to benefit others. Whatever the reason, a beneficiary is under no obligation to accept any gift left to them in a Will and has the right to refuse or disclaim it. Here are some points to consider in respect of declining a gift.
There are two methods of refusing an inheritance – by disclaiming it or by creating a deed of variation in the Will. It should be noted however for the refusal of a gift to be effective, it must be declined in writing and executed within two years of the date of death of the testator of the will.
Refusing your inheritance by disclaiming it
Where a beneficiary ‘disclaims’ their inheritance, this simply means they refuse to take it. When refusing your inheritance in this way the disclaimer must apply to the whole gift. The beneficiary can’t accept part of the gift and decline what they don’t want. The beneficiary must not have received any of the gift already. Disclaiming your inheritance means that you never become the legal owner and you have no rights to the assets and will not have any rights to the assets in the future, it goes back into the residuary estate to be distributed between the other beneficiaries. The beneficiary that refuses the inheritance cannot choose who their section will be distributed to.
Professional legal advice should be sort before refusing your inheritance by disclaiming it, every beneficiary’s circumstances are different and disclaiming may not be the most efficient way of achieving the outcome you are looking for.
Redirecting your inheritance using a Deed of Variation to redirect a gift
Another option is to redirect the gift by means of a deed of variation. Creating a deed of variation has the effect of changing the contents of the Will; it’s as if the alterations were made by the deceased before they passed away. Refusing your inheritance in this method provides the executors and beneficiaries more control over the redistribution of the refused inheritance. Unlike disclaiming, a beneficiary can refuse part of their inheritance, for example a share in a property but still accept their share of liquid assets. The refused section of inheritance bypasses the intended beneficiary completely and therefore there is no tax implications on their estate. Another benefit is that the refused inheritance can be redirected to whoever they choose, which can include someone who was not mentioned in the Will as beneficiary.
Accepting inheritance but gifting it to someone else
There is a third option when a beneficiary wishes to redirect their inheritance and that is by accepting it and gifting it to someone else. However, it is important to note that there could be tax implications by doing this method and it may not be appropriate under certain circumstances. Professional legal advice should be sort when a beneficiary wishes to redirect their inheritance in this way.
If a beneficiary accepts an inheritance, they become the legal owner and can do with their assets as they wish this includes giving them away. If a beneficiary gifts the assets, they have inherited away to someone else, for example a gift of a property passed to children, the gift is not subject to inheritance tax provided that the person giving it away survives 7 years and receives no benefit from the gift once it has been given. However, if they die within seven years or received benefit from it, the value of the assets is added back into their estate for Inheritance tax purposes which may give rise an Inheritance tax liability if the value of their estate exceeds the total of IHT allowances as available.
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