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Estate Planning

6 Reasons to Reject a Bequest

Think twice before accepting an inheritance

Businessman Raising His Hand to Reject a Bequest

Congratulations! You're named as a beneficiary in a will and due to inherit something you may not have expected. But don't get too excited — yet. On occasions, inheritances are more like curses than blessings.

See also: Good reasons to change your will.

Here are six scenarios when you might want to reject a bequest.

1. It's a smart tax move. Is the next person in line to receive the bequest close to you and in a lower tax bracket? Jeff Scroggin, a tax and estate-planning lawyer in Roswell, Ga., offers this example:

Your widowed mother passes, designating you as the beneficiary of her $40,000 individual retirement account and your college-bound daughter as the contingent beneficiary. You're in the top tax bracket, and your daughter is in the bottom. If the money's going to end up at the same place — say, your daughter's college — consider allowing the bequest to pass to your daughter and having it taxed it at the lower rate. Of course, a windfall might affect her ability to obtain financial aid, so you should weigh that factor before declining the bequest to allow your daughter to receive it. 

Be sure about who's next in line, though. "We don't recommend clients do disclaimers unless we've looked at the documents to make sure how the bequest will flow," says Scroggin. "Typically, you have nine months to make that decision."

2. It's a dog of a property. "Sometimes people don't want to deal with an asset," explains Rial Moulton, an estate-planning lawyer in Spokane, Wash. "I had a client who had property in New Mexico that he thought was going to be worth a lot of money one day. His son knew his dad had been trying to sell it and couldn't and thought, 'The state's going to want me to pay property taxes on it. Let the state have it.'"

It may also be smart to decline environmentally dodgy property. "I had a client whose uncle owned a building with dry cleaners in it for 50 years," says Scroggin. "Luckily, the client happened to mention that early on. We did testing and found soil contamination. My client disclaimed that building because the cost of cleanup outweighed any benefit." If everybody down the line to inherit rejects a bequest, the state becomes the lucky owner.

Next: Will it create tension in the family? >>

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