Understanding the possibility of redirecting an inheritance

November 7, 2021 7:31 PM

The aging parent, Paul, has a will that divides everything equally between his two sons, Adam and Bert per stirpes. Adam is financially very comfortable. If Adam disclaims his inheritance, does it go to his children or his brother? What if Adam wants it to go the other way?

I know "per stirpes" means that if Adam had died, his share would be divided evenly between his children. But if Adam is still living but doesn't want to inherit, what are his options -

Option A: When Paul dies, Adam wants the money to go to his children instead of himself - can he make that happen?
Option B: When Paul dies, Adam figures he can provide for his own children and wants his share to go to his brother Bert, can he do that? Would his children need to consent or is it just his decision?

There is an option C, where Paul rewrites his will but realistically Paul is not mentally competent to be making major decisions so Adam wants to know how much he can do after the fact, without changing the will.

posted by metahawk to Law & Government (13 answers total)

Where does Paul reside? Inheritance laws vary substantially by country, and within the US by state.

There's always option D -- Adam inherits his share and then immediately gives it to whoever he wants. Unless we're talking millions of dollars, there should be no US tax consequences for this, except maybe filing a form as part of his tax return.
posted by teraflop at 7:37 PM on November 7, 2021 [8 favorites]

Response by poster: Paul is currently living in California and the will mostly likely will be probated in California although it was probably written earlier (still US, not sure which state but certainly not Louisiana which I know has very different laws sometimes)

Adam would really to avoid inheriting and then re-gifting.
posted by metahawk at 7:45 PM on November 7, 2021

At least in Michigan, I believe this is a matter mediated through probate. What the children feel about this isn't necessarily relevant to probate (unless they'd like to be more involved).
posted by firstdaffodils at 7:53 PM on November 7, 2021 [2 favorites]

IANAL, but my understanding is that in order for a beneficiary to disclaim, there must be a secondary beneficiary (or beneficiaries) and the disclaimer's share must go to those secondary beneficiaries. (I'm not sure whether said secondary beneficiaries must be explicitly designated in the will or if the per stirpes provision is sufficient.) Anyway, the upshot is, if Adam disclaims, the money will be distributed according to the provisions of the will, and his preference, if any, would not supersede those provisions.
posted by bricoleur at 8:00 PM on November 7, 2021

Best answer: Clearly, talking to a lawyer is necessary... But you might also consider browsing bogleheads.org (for example or another example). They are knowledgeable and helpful regarding such matters over in that corner of the Internet.
posted by skunk pig at 10:14 PM on November 7, 2021

In some jurisdictions, if they are all in agreement, the beneficiaries can change the provisions in a will by making a deed of variation. It doesn’t look like this is possible in California, but I can’t be sure.
posted by plonkee at 4:18 AM on November 8, 2021 [1 favorite]

Well, once Adam inherits the money it's his to do whatever he wants with. But giving it away at that time may lead to different tax implications.
posted by metasarah at 5:38 AM on November 8, 2021

Adam would really to avoid inheriting and then re-gifting.
If it is for tax reasons, he should not worry about this. Gift tax is paid by the giver and does not kick until the giver reaches $11.7 million. If that amount is involved, a lawyer is cheap. You can also avoid gift taxes by paying educational or medical institutions directly on behalf of the recipient.
posted by soelo at 6:23 AM on November 8, 2021 [1 favorite]

I was just talking to a lawyer this weekend about transferring inherited money. I'd like to point out that $11.7 million is a lifetime limit. $15 thousand is the annual limit. It would be a pain to break up the transfer into annual payments but maybe an expert could tell you if that’s an option.
posted by rdr at 11:44 AM on November 8, 2021

I was just talking to a lawyer this weekend about transferring inherited money. I'd like to point out that $11.7 million is a lifetime limit. $15 thousand is the annual limit. It would be a pain to break up the transfer into annual payments but maybe an expert could tell you if that’s an option.

$15,000 is the annual limit FOR REPORTING, not for paying tax. You don't have to break it up into annual payments. You can give as much as you want, you just have to tell the IRS you're doing it if it's over $15,000 (and you have to pay tax if it's over $11.7M). I wish this was a sticky note that popped up every time someone mentioned gift tax on here!
posted by mskyle at 12:24 PM on November 8, 2021 [4 favorites]

$15,000 is the annual limit FOR REPORTING, not for paying tax.

Correct.

I wish this was a sticky note that popped up every time someone mentioned gift tax on here!

It has been eightzero days since the last AskMe Gift Tax Incident.
posted by praemunire at 1:22 PM on November 8, 2021 [5 favorites]

Best answer: This can vary depending on when the will was written, whether the will references specific probate codes or just states "per stirpes." If Adam has a copy of the will, they should take it to an estate planning attorney for specific advice.

Generally, in California, if the will was written after 1986 and says that the kids will inherit "per stirpes" or per Section 246 of the CA Probate code, then the estate is split into equal shares for each living kid and kids that predeceased that left their own kids (so the grandkids get their parent's share). When you disclaim an inheritance in California you are treated as pre-deceasing the testator.

So depending on the specifics of the will, Adam may be able to disclaim their share and their share would pass to Adam's kids.

IAMAL - IANYL. Take the will to a competent attorney and get fact specific advice.
posted by Arbac at 5:12 PM on November 8, 2021

Response by poster: Thanks. When his parent actually dies, Adam will consult a lawyer about the options. However, based on your answers, in the meanwhile, the working assumption will be that Adam can disclaim and his share will pass to his own kids due to the per stirpes language. The money will only go to his brother Bert if all of Adam's kids also decide to disclaim their right to inherit.
posted by metahawk at 9:17 PM on November 8, 2021