Magazine article The CPA Journal

Tax Court Rules Disclaimer Not Qualified Where Consideration Implied

Magazine article The CPA Journal

Tax Court Rules Disclaimer Not Qualified Where Consideration Implied

Article excerpt

In a regular opinion, the Tax Court recently ruled, in Estate of Monroe v. Commissioner, that disclaimers, which are frequently used in post mortem estate planning, do not qualify for estate or gift tax purposes where there is an implicit promise and later payment of consideration to the person disclaiming (disclaimant) for the disclaimer.

IRC Sec. 2518 contains the rules for disclaimers of gifts, and IRC Sec. 2046 also applies these rules for estate tax purposes. If a disclaimer is qualified, the property is treated as passing directly from the donor or decedent to the person entitled to receive the property as a result of the disclaimer. If a disclaimer is not qualified, the disclaimant is treated as having received the property. To be qualified, the disclaimer must be an irrevocable and unqualified refusal to accept the property. Also, the disclaimant must not have explicitly or implicitly accepted the property or any of its benefits. In addition, the "...acceptance of any consideration in return for making the disclaimer is an acceptance of the benefits of the entire interest disclaimed" Reg. Sec. 25.25182(d)(1). Neither the statute nor the regulations specify whether the consideration need be explicit.

Louise Monroe died in 1989. She was survived by her 92-year old husband Edgar Monroe. Louise's will made three bequests, in trust, of $500,000 each to her grandnieces and grandnephews, which were subject to the generation-skipping transfer tax. Also, her will contained cash bequests to 31 relatives and household employees, plus four corporations. The remainder of her $9,796,429 estate was left to Edgar and therefore qualified for the estate tax marital deduction. However, the amounts left to the other heirs were subject to the estate tax.

Edgar was upset about these taxes. His accountants, discussing these taxes with his nephew, indicated that the estate tax could be reduced if the nephew disclaimed his inheritance, which would then pass to Edgar. Monroe and his nephew targeted 29 legatees for disclaimers. The accountants pointed out that the disclaimants could not receive nor be promised any benefit for disclaiming, but Edgar could still make gifts or bequests in his will to them.

Edgar asked five and the nephew asked 23 of the legatees to disclaim. (One legatee, Tebo, disclaimed before being asked. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.