DEFINITION of Disclaim
Disclaim refers to the act of renouncing an interest or obligation by way of a legal instrument. Liabilities, obligations, beneficial ownership or rights may also be disclaimed, usually through a written disclaimer of interest or a disclaimer trust. A person disclaiming an interest, right or obligation is known as a disclaimant.
BREAKING DOWN Disclaim
In order to disclaim a gift, bequest or other interest or obligation, one must put the disclaimer in writing via a written disclaimer of interest. The disclaimer of interest must be submitted to the transferor of the legal interest or obligation, as well as his or her legal representatives, or the holder of the legal title of the property in question, within nine months of the date of transfer that has created the interest, or within nine months after the disclaimant’s 21st birthday. In the case of disclaimer of an inheritance, the disclaimer of interest must be submitted to the probate court.
Once the written disclaimer has been submitted, the disclaimant may not accept any part of the property, rights, obligation or interests he or she has disclaimed. In the case of an inheritance, the interest will then pass to the next heir in the line of inheritance; the inheritance will be treated as if the original named beneficiary had died before inheriting.
Reasons for Disclaiming Property or Interest
Property may be disclaimed for several reasons: because it is unwanted, because it carries heavy liabilities, because of tax reasons or because the intended beneficiary wants to pass the property to another beneficiary. A disclaiming trust may be used as part of estate planning; for example, a married couple may set up a disclaiming trust so that the first spouse to die can pass on his or her assets to his or her originally selected beneficiaries, and not to the new spouse of the surviving spouse, while still providing for the livelihood of the surviving spouse. An heir may disclaim an inheritance in order to pass the bequest on to his or her children, or because he or she does not want the responsibilities of caring for the property, or to avoid paying creditors’ claims on an estate.