Inheritance refers to the process of receiving assets from a deceased person's estate. This process is guided by the terms of the deceased’s Will, or the inheritance laws of the relevant Australian State or Territory, which provide guidance on distributing assets when a person dies without a Will.
Whether outlined as an intended beneficiary in the Will or designated under the relevant laws of intestacy (if there is no Will) - the beneficiaries are not obligated to accept their inheritance. Refusing an inheritance or failing to take the necessary steps to claim this money, is referred to as disclaiming an inheritance.
There are several valid reasons why a family member or loved one may refuse an inheritance that they are entitled to under the Will or the law.
Below, we cover why someone might refuse an inheritance, how to do this, what happens next, and the financial and legal consequences of instigating this process.
If the deceased estate generates a large inheritance, this can create more trouble than gain for the beneficiary if these assets increase their taxable income. Tax implications are therefore one key reason why a beneficiary might refuse inheritance - if the assets push them into a higher tax bracket and increase their tax bill, or if it will mean the loss of any government benefits, such as pension payments.
However, it is important to note that disclaiming an inheritance may still have tax and pension implications, and it is best to obtain financial advice before making a decision to disclaim.
There are several family related reasons that may result in the refusal of an inheritance. These include:
Desire to avoid conflict: Sometimes, inheriting assets can reignite old family conflicts, particularly if there are disagreements about who should receive what. Amid the upset of a death, refusing the inheritance might be seen as acting in the emotional interest of the wider family, yourself, and anyone else involved, by removing yourself from the conflict and giving up your interest in the estate.
Preserving relationships: In some cases, choosing not to accept an inheritance might be seen as a way to preserve family relationships for those involved. For instance, if the deceased had a strained relationship with their family members but they are identified as legally entitled beneficiaries, then inheriting assets might generate further family upset.
Some individuals may have personal or religious beliefs that influence their decision to accept an inheritance; especially if this is associated with financial gain from the death of a loved one.
Even if they are identified as a beneficiary under the Will or under the laws of intestacy as entitled to an inheritance, disclaiming assets associated with this legal right might be more aligned with personal beliefs or morals.
For example, irrespective of the rules, a second-marriage spouse might feel more comfortable knowing more financial assets are going to the children of the deceased, rather than them.
The law has specified steps and rules to follow for disclaiming assets in an inheritance. This ensures that these assets are passed onto the next beneficiary, and that others can still benefit from the assets in the deceased estate.
Below, we cover a step-by-step guide on how to disclaim inheritance assets, as a beneficiary of the estate.
Seek legal advice:
To navigate this process, and work out whether you should disclaim your interest in an estate, it is essential to seek legal and financial advice to understand the implications of your decision, such as who will receive the inheritance instead, and the tax or pension consequences for you.
Prepare a deed or affidavit of disclaimer:
This is a legal document which explicitly states your intention to disclaim the inheritance. The deed or affidavit of disclaimer must be unconditional and, once signed, cannot be revoked if you change your mind.
To ensure that the disclaimer is legally binding, it's important to have the document signed in front of a witness or a lawyer. This is in the interest of both yourself, and the other interested parties (such as the executor, administrator, or other beneficiaries).
Provide copies of the disclaimer:
In some cases, the signed disclaimer must be submitted to the Supreme Court as part of an application for Probate or Letters of Administration. At a minimum, the original signed disclaimer document should be stored somewhere safe (if not required by the court) and all affected parties to the disclaimer should have a signed copy for their records.
Disclaiming an inheritance can be complicated. Seeking legal advice from an expert can ensure you sign the required forms, and understand your rights.
With the complexity of this process in mind, it's worth noting the consequence of disclaiming an inheritance before doing so. These cover a range of financial and legal impacts - both for yourself, other family members, and the person identified as the next beneficiary.
Firstly, it's important to understand that disclaiming inheritance assets is giving up your rights as a beneficiary. Completing this process has an irreversible effect on your entitlement to assets and property within the deceased person's estate, as well as the associated financial benefits of these gifts or income streams.
Losing all rights as a beneficiary can have financial implications, so it's important to consider your personal financial situation before making any decisions.
As discussed above, there can be financial consequences of disclaiming an inheritance (either under a Will or under the laws of intestacy); specifically in relation to tax. Consulting with an expert before going ahead ensures you are fully informed on the law and associated tax implications for both yourself, family, and the assets themselves.
For example, if the right documentation is not prepared to record the disclaimer, then this may result in Capital Gains Tax or Stamp Duty implications for other beneficiaries.
A disclaimer of interest may still be captured in the gifting threshold, which can impact your eligibility for government benefits. For example under the Age Pension gifting rules, a person can only dispose of $10,000 in gifts each financial year and $30,000 maximum in 5 financial years (as at 2023). Gifting away an amount higher than these thresholds (via a disclaimer) can trigger a breach in the rules.
Disclaiming assets also impacts who stands to benefit from the estate, following the disclaimer. The assets which you decline will be passed onto the next beneficiary, who might not be the same person you would choose.
Knowing who this beneficiary will be, and who will gain financial income from your decision, may impact whether you decide to go ahead with disclaiming your interest in the estate.
Disclaiming an inheritance can have real, long-lasting and irreversible consequences.
In considering this decision amid the immediate aftermath of a death, it's important to seek legal advice to fully understand the repercussions of the decision, as well as how this decision may impact your family, your financial situation, or the next beneficiary to the estate.
Safewill Legal is Australia’s most affordable fixed-fee probate & estates law firm. We charge one fixed fee to obtain probate or letters of administration, regardless of the size of the Estate. We can also provide tailored guidance regarding a potential disclaimer of interest in an Estate.
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