Summary:
Give heirs alternatives in your will. If they disclaim or renounce, show who should receive asset. This can save gift or estate taxes.

Give heirs the option to change your will--after you leave.

If you're not sure about how you should distribute assets, allow your beneficiary to choose an alternative. Opting for the change is a disclaimer.

These examples show how it works:

• Margaret's will says $100,000 goes to her son, Jim, but if he disclaims it
  

goes into a trust for his disabled son. Margaret's tax attorney would put this in legal language. The law treats the disclaimer as if the $100,000 had never gone to him with the trust receiving it from Margaret's estate. No gift taxes would be due.

• Tom's will says half his estate goes to his widow with remainder to his son, but if his son disclaims some or all of what he would receive, this passes to the widow.
  

After his death, their accountant said the estate would have a large tax bill. If the son disclaims some of his inheritance, the estate gets a deduction because this then goes to the widow, and what goes to a spouse is deductible. The disclaimer eliminated the estate tax.

The son need not disclaim all his inheritance, only the amount needed to give his mother full benefit of the estate's exclusion. By disclaiming part of his inheritance, the son saved estate taxes.

• Helen's will says her home goes to her brother, George, but if he
  

disclaims, the house goes to his daughter. He disclaimed half of it, so he and his daughter owned the house jointly. George was smart. If he had decided to accept the right to live in the house until he died, with the house then going to his daughter, that would be an invalid disclaimer. George can disclaim amounts, particular assets or fractions of an asset, but not what remains after his life.

• Mary's will says her estate goes to her brother, Fred, but if he disclaims, it goes to her favorite charity. Fred could reduce estate tax and benefit the charity by disclaiming part of his inheritance.
• Lisa's will says her IBM stock goes to Jerry, but it didn't say what would
  

happen if a beneficiary disclaimed. Jerry disclaimed. Here who gets the stock depends on state law. Lisa should have said in her will what would happen if Jerry disclaimed.

* * * * *

A valid disclaimer must meet state and federal requirements including the following:

• The heir must disclaim before accepting bequest benefits. An heir couldn't accept a dividend and then disclaim inherited stock.
  
• The heir cannot control who the bequest will go to. It goes as the will says.
  
• The disclaimer must be in writing and generally must be signed within nine months after the decedent's death.
  
• The disclaimer must be irrevocable. Will defects are common, either because of law or financial position changes; a disclaimer may be the cure.
  

THE MORAL: To claim or disclaim--that is the taxing question.

More at Estate Planning.