Steps to take to successfully reject inheritance
Q: I am one of four siblings whose mother passed away last year. She had a will. In it, she left an equal share of her house and all other financial assets to her children, all four of us.
For a variety of reasons, I’m not interested in receiving my one-quarter share in the house. I’d prefer to allow my share to pass to my youngest brother. I also do not wish to receive an offsetting increase in the financial assets to account for ceding a one-quarter interest in the house.
My oldest brother wishes to do likewise, while a third brother wishes to allow the house deed to transfer to the youngest brother but wishes to receive an offsetting increased share in the financial assets to account for ceding his one-quarter interest in the house.
My question: Is there a simple and direct way (under New York law) for me and my one brother to cede our shares in the house? We would like to allow our shares to pass to our youngest brother under the will without creating a taxable event.
Presumably, the preferred course of my third brother would require a different transaction, since he wants to be compensated for his share of the property by an increase of equivalent value in his share of the financial assets in the estate.
Can you please advise how we might best proceed to accomplish these objectives and avoid any taxable transfers of assets outside the will. Thank you.
A: Just because someone names you as an heir, that doesn’t mean you have to accept the bequest. Your mother may have named all of her children equally, but if you reject the inheritance (more on how to do that
momentarily), your share of the inheritance will end up back in the pot, to be divided among the other named heirs.
So, if you and your brother reject your bequests, then your two remaining siblings will divide the inheritance — the entire inheritance — between them. For the logistics of how to do this, you’ll want to talk to an estate attorney in the state of New York.
Let’s say that your mother’s house is worth $500,000 and her assets are worth another $500,000. So, her estate is valued at $1 million, with you and your three brothers each getting $250,000. If you and your one brother opt out completely, then your remaining two brothers will share the entire estate equally and receive $500,000 each.
Between them, and before the estate closes,
they can trade their share of the house for a share of the financial assets or cash. So, if your brothers each get a share of the property worth $250,000, and they divide the $500,000 in cash, then one brother can take the house and the other can take the cash. The estate can, through probate, deed the property to the one brother, and retitle the financial assets in the name of your other brother.
We don’t know how much money your mother’s estate is worth, but unless she was very wealthy, it’s unlikely that federal or
New York state estate taxes would come into play. (For our other readers, be aware that in some states you do pay an estate tax based on the value of the estate at any level.)
Although the federal estate tax exemption is $12.92 million per individual in 2023 (up from $12.06 million in 2022), New
York estate tax kicks in for estates over $6.58 million in 2023 (up from $6.11 million in 2022).
If we assume your mother passed away in 2023, and her estate (including all real property, like her house, and all financial assets, plus any other assets) is worth less than $6.58 million, there would be no estate tax for New York.
If the estate in New York exceeds the exemption amount by 5% or less, then estate taxes are due just on the overage. If the estate exceeds the exemption amount by more than that, then estate taxes are owed on the entire amount of the estate.
For your edification, the estate tax in New York ranges from 3.06% to 16%. If your mother’s estate exceeds $12.92 million, then federal estate tax would also kick in, but on a graduated basis.
If you decide to disclaim a bequest, you should specifically and explicitly reject the request in writing.
The document should be signed by you (and probably witnessed or notarized). The rejection should be irrevocable and unconditional. Your mother’s estate attorney can prepare an appropriate document that you can sign, and provide you with other local guidance about probating your mother’s estate.
You don’t have to overcomplicate the process, but you should work with the estate attorney to make sure you file the paper properly. That way, the disbursement of your mother’s estate will go smoothly.