Disclaiming Inherited Property (Real Estate)

Next Avenue’s article “What to Do When You Inherit Your Parent’s House,” presented three choices: sell the property, rent it, or live in it. However, there is another, perhaps simpler option: disclaim or renounce the house by filing a written disclaimer.

As long as the beneficiary has not acted in any way that indicates acceptance of the property, such as transferring or selling it or accepting rent or other payments, he or she can file a written disclaimer, usually in the form of an affidavit, which must be delivered to the legal representative of the decedent’s estate within nine months.

Why forego the acquisition of an inherited asset? Among the factors to consider is that the benefits of an interest may be outweighed by the responsibilities that come with it, such as payment of property taxes and maintenance expenses. In addition, outstanding mortgage debt transfers with the house, so if the beneficiary is unable to make the payments, the property could be more of a burden than an asset.

As far as creditors are concerned, a disclaimer completely removes the disclaiming party from the line of inheritance, so his or her creditors cannot lay claim to the inherited asset. Instead, it goes to the next beneficiary in line.

Another advantage of renouncing an inheritance may be avoidance of estate tax, especially when approaching the threshold of the exempt amount, which, after adjustment for inflation, will be $5.43 million in 2015. The generation-skipping tax exemption may enable the children of the deceased or parental generation to disclaim in favor of their children, i.e., the grandchildren of the deceased. Also, children who inherit along with a surviving spouse can renounce their portion of the estate in favor of the surviving parent in order to avoid paying tax on it.

Each state has laws that determine the form and content of a disclaimer, as well as entities to whom such a document should be delivered. Many states have adopted the Uniform Disclaimer of Property Interests Act (UDPIA) of 1999, which regulates disclaimers of inherited properties and granted powers as part of the Uniform Probate Code.

Depending on the circumstances, inheriting real estate can be a blessing or a curse. If the beneficiary is considering how to handle an inherited house or other property, it’s worth including a disclaimer among the possible options.