Academic journal article Journal of Accountancy

Disclaimers Were Invalid When Legatees Were Paid Later

Academic journal article Journal of Accountancy

Disclaimers Were Invalid When Legatees Were Paid Later

Article excerpt

At Louise Monroe's death in 1989, the value of her one-half interest in the Monroes' community-property estate was $9.7 million. Louise was survived by her husband, Edgar.

Louise's will made specific bequests to 31 individuals. The estate's accounting firm recommended 29 of these people disclaim their gifts to increase the estate's marital deduction, thereby reducing the estate tax.

Internal Revenue Code section 2056(a) allows an unlimited estate tax marital deduction for property interests passing from a decedent to the surviving spouse. Under the regulations, if a qualified disclaimer results in the surviving spouse becoming entitled to the disclaimed property, the property is treated as passing from the decedent to the surviving spouse for purposes of the marital deduction.

A qualified disclaimer is defined in IRC section 2518, which requires, among other things, an irrevocable and unqualified refusal by the donee. It also requires that the person making the disclaimer not accept the interest or any of its benefits. Treasury regulations section 25.2518-2(d)(1) says "accepting the interest" includes accepting any consideration in return for making the disclaimer.

The 29 legatees were asked to disclaim their gifts, and each agreed to do so; all signed valid disclaimer documents in December 1989. …

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