Ask a solicitor: Disclaiming an inheritance — do I have to accept it?

Difficulties often arise where a beneficiary wishes to disclaim 'in favour of' a specific person, such as a child or other relative, writes solicitor Alex Krupa

A disclaimer means that you formally refuse to take the benefit to which you are entitled. This must be done clearly and unequivocally, usually by way of a written deed of disclaimer.

Dear Alex,

My father passed away recently and his will is currently being dealt with. Under the will, I am due to inherit a share of the estate.

However, I have done well for myself and do not actually need the inheritance. I would prefer that it go to one of my siblings instead, who would benefit a lot more from it. I have been told that I can disclaim my inheritance, but I am unsure how this works in practice and whether I can disclaim in favour of a named person.

I am also concerned about any tax consequences. What should I be aware of before making a decision?

Dear Reader,

You are not obliged to accept a benefit left to you under a will, and Irish law allows a beneficiary to disclaim an inheritance. A disclaimer means that you formally refuse to take the benefit to which you are entitled. This must be done clearly and unequivocally, usually by way of a written deed of disclaimer.

It is important to understand that disclaiming an inheritance is very different from accepting it and then passing it on. If you properly disclaim, you are treated in law as if you had predeceased the testator, meaning that you are regarded as having died before your father with no issue, for the purposes of the distribution of the estate.

Where a beneficiary disclaims, the next question is what happens to the disclaimed share. In most cases, the will itself will determine this. Very commonly, the disclaimed benefit will fall into the residue of the estate and be distributed in accordance with the residual clause of the will.

Alternatively, if the will provides for a substitute beneficiary in the event that a beneficiary does not take their entitlement, the gift may pass in that way.

A key point to note is that a true disclaimer cannot direct the benefit to a named person. Once you disclaim, you have no further control over what happens to that share. The distribution is governed entirely by the terms of the will or, failing that, by the rules of succession

Difficulties often arise where a beneficiary wishes to disclaim “in favour of” a specific person, such as a child or other relative. While this may seem straightforward, it can have significant unintended consequences.

If you attempt to disclaim in a way that effectively directs the benefit to a named person, this can trigger multiple tax events. In such circumstances, Revenue may treat you as having taken the inheritance first. 

This means that you could be liable for capital acquisitions tax on the inheritance you received from your father. The subsequent transfer to your sibling may then be treated as a gift, potentially exposing your sibling to a gift tax.

This results in what is often described as double taxation, and it is highly tax inefficient.

By contrast, where a beneficiary makes a valid disclaimer without attempting to control the destination of the benefit, the inheritance passes as if that beneficiary never existed. In such a case, the beneficiary who ultimately receives the inheritance is taxed as taking directly from the deceased, which is generally far more tax efficient.

Timing is also critical. A disclaimer must be made before you accept any benefit from the estate. Even minor acts, such as receiving funds, occupying property, or dealing with assets as if they were yours, can be taken as acceptance and may prevent you from disclaiming at a later stage.

For these reasons, disclaiming an inheritance should never be done without careful consideration and legal advice. While disclaimers can be very useful estate planning tools, they can easily create serious tax problems if used incorrectly. 

Where a beneficiary is considering refusing an inheritance in favour of another person, particularly a named individual, specialist advice should always be taken before any steps are made.

A properly drafted disclaimer, made at the correct time and without conditions, can ensure that the estate is administered efficiently and that unnecessary tax liabilities are avoided.

Alex Krupa LLB specialises in Family Law, Enduring Power of Attorney and Applications in respect of Mental Capacity and Assisted Decision Making and is a solicitor practising in Walsh & Partners Solicitors LLP, 88 Main Street, Midleton, Co Cork.

Email: [e-mail] 

Web: www.walshandpartners.ie

• While every effort is taken to ensure the accuracy of the information contained in this article, solicitor Alex Krupa does not accept responsibility for errors or omissions, howsoever arising. Readers should seek legal advice in relation to their particular circumstances at the earliest opportunity.