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Deeds of Disclaimer
A Deed of Disclaimer allows a beneficiary named in a Will to be able to effectively reject the gift. The reasons for doing so may be philanthropic or purely practical.
Example:
Bob, a wealthy businessman decides to leave a large legacy of £300,000 to his nephew Max. Max already has a great deal of wealth of his own, and decides to refuse the gift to prevent his own estate grossly exceeding the inheritance tax band allowance.
Requirements
Certain requirements need to be satisfied to effectively execute a Deed of Disclaimer. These are:
- The refusal of the gift must be made in writing to the representatives/executors dealing with the estate.
- The Disclaimer must be made within 2 years of the death of the decedent.
- The disclaiming party cannot derive any benefit from the gift/interest being disclaimed/rejected.
Whilst there is an allowance of a 2 year period in which to make the Disclaimer, it is usually advised that the Disclaimer be made as soon as possible to prevent any benefit being derived from the gift/interest. For example, once some form of benefit has been gained from the gift such as interest on a savings account or dividends from shares, the Disclaimer option is forfeited.
- The Disclaimer cannot be made for any consideration in money or money's worth.
Example:
Uncle Bob left a valuable ring to his niece Janet. Janet proposed to disclaim the ring in return for its monetary value. This cannot be done.
- The person making the Disclaimer must be over the age of 18. Minors cannot disclaim gifts left to them. However, the Court can do so on their behalf.
- The entire interest/gift must be disclaimed.
Example:
Partial disclaimers cannot be made. Uncle Bob left Max a legacy of £300,000 in his Will. Max decided that whilst he did not really need the whole gift, he could do with some. Thus, he proposed to disclaim half the legacy - £150,000 - and keep the other half. This cannot be done.
The Disclaimed Gift
The effect of disclaiming an absolute gift (other than residue) is that the disclaimed gift - i.e. a legacy, a specific item - will fall back into the residue of the estate (remainder) to be distributed according to the Will (or rules of intestacy if no Will).
Example: Absolute Gift
Bob left £300,000 to his nephew Max and the remainder of his estate (residue) to his daughter Carol. Upon his death and after the sale of his properties etc. the remainder of his estate totalled £600,000.
Max decided to disclaim/reject the gift of £300,000. Consequently, it fell back into the residue of the estate thus totalling £900,000 which ultimately passed to Carol.
The effect of a disclaimer on residue or part of the residue is to cause an intestacy as to the gift disclaimed.
Example: Residue
Bob left the residue (remainder) of his estate to his daughter Carol. Carol decided to disclaim/reject the gift of the residue. Thus, the disclaimed gift fell back into the estate.
Because Bob's Will did not go on to mention any other classes to whom the residue should pass to in the event that his daughter did not inherit, the residue of the estate thus became subject to the rules of intestacy.
WARNING! It is important to be aware of the rules of intestacy, particularly with regards to the above example. Sometimes, a disclaimer will fail in that the disclaiming party will still receive the gift irrespective of their intentions not to do so.
Lets take another look at the above example;
Example: Residue ... continued
As we saw above, Carol wished to disclaim the gift of the residue of the estate, thus invoking the rules of intestacy. If however, Carol was the only sole survivor the rules of intestacy compel that the residue must still pass to Carol. She would have been better advised to have made a Deed of Variation instead.
Alternative Scenario
Bob leaves the remainder of his estate to his daughter Carol (as above). Carol wishes to disclaim the gift thus it passes back into the estate and distributed according to the rules of intestacy (as above). Bob's only other surviving family member is his nephew Max. Thus, Carol having rejected the gift, the rules of intestacy will be applied to direct the residue to Max instead.
Deeds of Variation vs. Deeds of Disclaimer
- Disclaimers are an outright rejection of a specific gift/interest bequeathed by Will; the disclaiming party cannot re-direct the gift to another person whereas Deeds of Variation allow this.
- Disclaimers cannot reject/disclaim part of the gift - the rejection must be the entire gift. Deeds of Variation do allow for partial redistribution of assets.
- A disclaiming party cannot derive any benefit from the gift to be disclaimed. If he/she does so, they lose the right to disclaim. Deeds of Variation are not void or forfeited even if benefit has been derived from the gift to be varied.
Thus, Deeds of Variation appear to be somewhat more flexible. However, Disclaimers can prove useful as the above examples demonstrate.
