When Saying “No” to an Inheritance Might Make Sense

28 Apr 2025 When Saying “No” to an Inheritance Might Make Sense

When people talk about estate planning, the focus is usually on how to leave assets. Rarely do we talk about the other side of the table—the recipient’s. Yet for heirs, especially those in high-net-worth families, an inheritance isn’t always simple—it can come with its own set of complex decisions.

One of the lesser-known tools available to heirs is a qualified disclaimer, which is a formal, irrevocable refusal to accept all or part of an inheritance. At first glance, disclaiming an inheritance sounds counterintuitive. But in specific, well-planned scenarios, a qualified disclaimer can be a deliberate way to manage taxes, protect assets, or recalibrate family wealth.

This is not intended as legal or financial advice but rather a framework for understanding when and why disclaiming an inheritance might make sense—and why it’s essential to talk about these possibilities long before the time comes to act.

Disclaimers: partial or all-encompassing

Many people assume that if you disclaim an inheritance, you must forfeit everything. In reality, qualified disclaimers under federal law let you refuse all or part of a bequest, provided you meet certain legal criteria (including filing the disclaimer in writing within nine months of the decedent’s death and not accepting any benefits from that asset beforehand).

For example, you might disclaim a large retirement account that would push your income into a higher tax bracket, yet still accept real estate or other assets that don’t create the same tax impact.

Importantly, a disclaimer doesn’t necessarily mean the asset disappears or goes to the state. In most cases, it simply passes to the next beneficiary named in the estate plan—often a family member. As we’ll discuss, this can allow assets to stay in the family while avoiding unintended tax consequences or legal exposure. In that way, a disclaimer doesn’t impede the original intent of supporting the next generation and may actually help preserve it.

While disclaimers are often discussed in the context of estate-tax avoidance, they can be just as relevant if you’re concerned about income taxes, asset protection, or family wealth distribution. Even if your personal estate isn’t near federal exemption limits, disclaiming a single tax-heavy asset can spare you from substantial income-tax consequences.

State vs. federal requirements

While the nine-month rule is standard for federal “qualified” disclaimers—important for preserving federal tax benefits—states may have additional requirements. Always verify whether your state has any variations or extra steps (such as filing a disclaimer in a local probate court).

Managing inherited IRAs

Inherited retirement accounts can impose distribution rules and income-tax consequences that catch many beneficiaries off guard. Most non-spouse beneficiaries must withdraw all assets from an inherited IRA within ten years. Those distributions are taxed as ordinary income, which can push a beneficiary into a higher tax bracket. Certain “eligible designated beneficiaries”—such as surviving spouses, minor children of the decedent, disabled or chronically ill individuals, and beneficiaries not more than 10 years younger than the decedent—may be permitted to stretch distributions over their life expectancy. However, most adult children and other heirs do not fall into these categories and are subject to the 10-year rule.

Suppose you’re a physician already in the 35% marginal bracket, set to inherit a sizable IRA. Accepting it means you’ll have to draw down the account within ten years, further inflating your income in years when you’re already near the top bracket. However, disclaiming that IRA could potentially allow it to pass instead to a college-aged child in a significantly lower bracket. Although the child will still probably face a 10-year distribution schedule, their overall tax rate during that period would likely be lower than yours. As a result, more of the inherited value stays within the family, and the original intent of supporting the next generation is preserved.

Of course, timing is everything. Under federal law, a disclaimer must generally be filed within nine months of the decedent’s death, and it’s irrevocable. If you take even a single distribution—or otherwise exercise control over the account—you lose the option. Keep in mind that some states have additional or varying rules, so confirm with a qualified estate attorney to ensure you meet both federal and state requirements.

When asset protection becomes paramount

Not all threats are tax-related. Sometimes, personal circumstances—divorce, litigation, or financial instability—make it unwise to inherit assets directly. Imagine the issues that could arise if an heir is in the midst of a contentious divorce. Inherited assets are typically considered separate property, but if the heir uses that inheritance to buy a new home, pay joint expenses, or deposits it into a joint account, the line between separate and marital property can blur quickly.

Disclaiming the inheritance might allow the assets to flow into a trust for the benefit of the heir’s children—but only if the estate plan specifies this outcome. A disclaimant cannot direct where disclaimed property goes; it passes according to the terms of the governing estate plan or intestacy laws.

The same principle applies to those facing professional liability. Surgeons, attorneys, and business owners with creditor exposure may find that disclaiming in favor of a protective trust or lower-risk beneficiary is the more prudent choice.

This type of maneuver requires foresight, strong estate documentation, and an understanding that disclaiming is absolute—once it’s done, there’s no going back.

Rebalancing the scales within the family

There are also moments when disclaiming serves a more relational than financial purpose. Sometimes heirs disclaim inheritances to rebalance wealth among siblings or other relatives who need the assets more. For instance, a financially secure heir might disclaim a portion of their parents’ estate, allowing it instead to pass to a sibling who is just starting a business or still paying down significant debt.

On the surface, this is an act of generosity. But it can also be a smart long-term decision. For the sibling in greater need, the assets offer support and may involve fewer tax complications. And by avoiding receipt of those funds, the wealthier sibling may keep their own estate from ballooning unnecessarily.

Still, disclaiming to “balance the scales” requires a plan. If the estate documents don’t clearly articulate the alternate beneficiaries, the assets could pass in ways the family didn’t anticipate. Worse, it could open the door to legal disputes. For anyone considering this kind of gesture, it’s imperative to carefully review estate documents with a qualified professional to get personalized advice.

The unexpected costs of accepting an inheritance

Receiving a large inheritance can turn into a strategic tax problem—especially for individuals already near or above estate tax exemption levels. Current federal estate tax rates can reach 40%, and the exemption amounts may change over time.

Say you’re in your late 50s, already financially secure, and inherit $4 million from your parents’ estate. On paper, it seems like a gift. But that gift can also be a tax liability in certain situations. The federal estate tax exemption is subject to change. What if the inheritance increases your total estate above the federal exemption threshold, potentially triggering estate tax when you pass? Currently, that could expose your heirs to a 40% estate tax on the portion above the federal exemption.

By disclaiming the inheritance, those assets could potentially pass to other heirs, including children, who may be earning less and have estates farther from the taxable threshold. This scenario is relatively rare and would require professional guidance, but, done properly, it could preserve family wealth instead of eroding it.

Start the conversation before you have to make a decision

Perhaps the most important lesson in all of this is that inheritance planning should be a two-way conversation, not a unilateral decision made at the end of someone’s life.

Too often, heirs find themselves facing decisions they didn’t anticipate—decisions that may carry unintended tax consequences or disrupt family dynamics. An open, proactive discussion between generations can uncover opportunities to structure wealth transfers more strategically from the outset.

That’s why communication within families is so important. Talk to your parents. Ask whether their estate plan contemplates the potential need for a disclaimer. Discuss what might happen if you’re in a high tax bracket, facing legal issues, or trying to equalize gifts across generations. These conversations can be uncomfortable, but that doesn’t make them any less necessary.

Disclaiming an inheritance should never be done in haste. These decisions involve tax laws, timing windows, and irrevocable consequences. They can’t be made meaningfully without context.

A tool—not a solution

Disclaiming an inheritance is not about rejecting wealth—it’s about managing it with foresight. In the right circumstances, it can minimize taxes, preserve family harmony, or protect assets. But it’s not a cure-all. It’s a tool, and like any tool, it works best when used in the right hands and with the right advice.

If you’re considering how to navigate these issues within your own family, it’s wise to consult with estate attorneys, tax professionals, and fiduciary advisors who understand the complexities involved. Every situation is unique, and a decision this consequential deserves more than general guidance.

This article is intended to provide insight, not legal or tax advice. The right move for you will depend on your full financial picture, estate structure, and family dynamics.

If you’d like to discuss your estate planning needs with one of our advisors, please contact one of our advisors. We’re always happy to help.

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