What is a Disclaimer?

A Disclaimer is typically used in connection with the administration of an estate after an individual’s death. It is an irrevocable and unqualified refusal by an individual (the “disclaimant”), to accept the ownership of an interest in property. In order for a disclaimer to be effective, the person making the disclaimer cannot have accepted any of the benefits of the asset being disclaimed.

If a person makes a "qualified” disclaimer in accordance with Internal Revenue Code § 2518, the disclaimed interest is treated as never having been transferred to the person making the disclaimer for federal estate, gift, and generation-skipping transfer tax purposes. Instead, the law treats the asset or interest in property being disclaimed as if the disclaimant predeceased the person making the gift or the person from whose estate the interest would be received. The disclaimed property interest is considered as passing directly from the transferor of the property (typically the decedent) to the person or persons now entitled to receive the property as a result of the disclaimer. The person or persons entitled to receive the property as a result of the disclaimer will vary depending on the situation, but will typically be the disclaimant’s heirs. The notable exception to the heirs being the recipient of the asset or interest in property is if the individual disclaiming is deceased and his or her personal representative is making the disclaimer. In that situation, where the asset or interest in property goes following the disclaimer will depend on the provisions of this decedent’s Will.

The requirements of both the Internal Revenue Code and Minnesota's disclaimer statutes must be taken into account when considering the use of a qualified disclaimer. If the disclaimer is not qualified, it is disregarded for federal transfer tax (estate tax, gift tax and generation-skipping tax) purposes and the disclaimant is treated as having received the property. If the disclaimer is not “qualified” for Federal tax purposes, it may still be effective under Minnesota law with respect to who winds up owning the property. It just won’t receive the desired tax treatment.

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