Revocable Living Trust Question - Disclaiming?

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Fat Tails
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Revocable Living Trust Question - Disclaiming?

Post by Fat Tails »

Trust and Estate Experts,

For some background, my parents have a revocable living trust. Their estate is modest, but contains several rental real estate properties. At some time in the future, hopefully not soon, I will be the successor trustee as well as one of 3 beneficiaries (with my two siblings). My wife and I MAY prefer that our portion of the inheritance pass to our kids instead of us.

My question: Is there a way to “disclaim” this inheritance in a similar manner that the beneficiary of an IRA can disclaim and have the IRA pass to the named secondary beneficiary (our kids) without having that money flow into and out of our estate (with the associated gifting issues).

If this is possible, does this option have to be documented in the trust document to be allowed?

Thank you for your time.
“Doing well with money has little to do with how smart you are and a lot to do with how you behave.” - Morgan Housel
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celia
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Re: Revocable Living Trust Question - Disclaiming?

Post by celia »

If an account has listed beneficiaries, if you are listed as one, when you disclaim, your portion will go to whoever would have inherited, had you died before your parent(s). That could mean the other primary beneficiaries split your share. There is an exception if your portion of the account is listed as "<Fat Tails> per stirpes". That means your share could go to your descendants instead. Note that you can't chose who gets your share when you disclaim. Your disclaimed share will go to other beneficiaries depending on how they are listed (ie, primary, secondary, percentage to each).

If an asset is owned by a trust (instead of having beneficiaries listed), the trust will define who gets your share, should you disclaim (or die before the grantor of the trust).
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ipdiddly
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Re: Revocable Living Trust Question - Disclaiming?

Post by ipdiddly »

You can also amend the trust language so that it reads something like: "IRA goes to beneficiary A, but if beneficiary A predeceases me or disclaims this bequest, then to beneficiaries X and Y equally." This is just an example, and the language becomes more complicated if the IRA is listed as part of the estate residue that is divided equally between A, B and C. I don't think a beneficiary can disclaim part of a bequest unless that part is separately bequeathed. (I defer to the experts on this point, however.)
In other words, if a bequest reads, I bequeath all of my property, real and personal, to beneficiaries A, B and C, to be divided equally, I don't believe beneficiary A can disclaim just the IRA. (Again, I defer to the experts.)
I think it is extremely important that bequests, whether by will or trust, be absolutely crystal clear about how each bequest is handled, particularly in the case where a beneficiary predeceases the decedent or where the beneficiary may wish to have the option to disclaim.
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ipdiddly
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Re: Revocable Living Trust Question - Disclaiming?

Post by ipdiddly »

I should have mentioned that it is fairly easy to amend a trust. You don't need to rewrite and execute the whole trust. You can literally write a one page amendment that is signed by the grantor and trustee (preferably with signatures notarized, but even this may not be mandatory).

"This amendment amends Trust ABC dated xx/yy/zz as follows: Paragraph 14 of the Trust is replaced with the following new paragraph 14. . . ."

Of course, you need to check the requirements in your state, but a Trust is akin to a contract so typically the rules of contract law generally apply.
bsteiner
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Re: Revocable Living Trust Question - Disclaiming?

Post by bsteiner »

You may disclaim.

Unless the instrument provides otherwise (for example, to A if he survives me, otherwise to B, except if A survives me but disclaims then to C), the disclaimed property will go as if you predeceased the grantor.
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celia
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Re: Revocable Living Trust Question - Disclaiming?

Post by celia »

ipdiddly wrote: Thu Apr 08, 2021 8:50 am I don't think a beneficiary can disclaim part of a bequest unless that part is separately bequeathed. (I defer to the experts on this point, however.)
In other words, if a bequest reads, I bequeath all of my property, real and personal, to beneficiaries A, B and C, to be divided equally, I don't believe beneficiary A can disclaim just the IRA. (Again, I defer to the experts.)
Inheriting is not an all or nothing decision. You can disclaim specified assets (eg, real estate, tax-deferred accounts) or a fraction of them (eg. 33.33% of the TBD account. What you CAN’T do, is specify who gets your disclaimed assests. So, before you disclaim, it is a good idea to confirm who will get the assets you disclaim.
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Fat Tails
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Re: Revocable Living Trust Question - Disclaiming?

Post by Fat Tails »

ipdiddly wrote: Thu Apr 08, 2021 9:01 am I should have mentioned that it is fairly easy to amend a trust. You don't need to rewrite and execute the whole trust. You can literally write a one page amendment that is signed by the grantor and trustee (preferably with signatures notarized, but even this may not be mandatory).

"This amendment amends Trust ABC dated xx/yy/zz as follows: Paragraph 14 of the Trust is replaced with the following new paragraph 14. . . ."

Of course, you need to check the requirements in your state, but a Trust is akin to a contract so typically the rules of contract law generally apply.
Thank you!
“Doing well with money has little to do with how smart you are and a lot to do with how you behave.” - Morgan Housel
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Fat Tails
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Re: Revocable Living Trust Question - Disclaiming?

Post by Fat Tails »

ipdiddly wrote: Thu Apr 08, 2021 9:01 am I should have mentioned that it is fairly easy to amend a trust. You don't need to rewrite and execute the whole trust. You can literally write a one page amendment that is signed by the grantor and trustee (preferably with signatures notarized, but even this may not be mandatory).

"This amendment amends Trust ABC dated xx/yy/zz as follows: Paragraph 14 of the Trust is replaced with the following new paragraph 14. . . ."

Of course, you need to check the requirements in your state, but a Trust is akin to a contract so typically the rules of contract law generally apply.
Thank you!
“Doing well with money has little to do with how smart you are and a lot to do with how you behave.” - Morgan Housel
Topic Author
Fat Tails
Posts: 519
Joined: Wed Oct 30, 2019 12:47 am
Location: New Mexico

Re: Revocable Living Trust Question - Disclaiming?

Post by Fat Tails »

bsteiner wrote: Thu Apr 08, 2021 9:02 am You may disclaim.

Unless the instrument provides otherwise (for example, to A if he survives me, otherwise to B, except if A survives me but disclaims then to C), the disclaimed property will go as if you predeceased the grantor.
Thank you!
“Doing well with money has little to do with how smart you are and a lot to do with how you behave.” - Morgan Housel
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