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Thursday, April 1, 2010

Can a beneficiary turn down an inheritance?

Recently I was asked this question at a seminar. Another audience member turned to the person asking the question and said, "why would you want to turn it down?" I think that is the reaction of most people, but there are certainly cases where a beneficiary would rather not receive the inheritance.

I was involved in a case where a woman died without making a Will. She had a husband and three adult children. Most of the assets of the marriage, including the family home, were in her name. Under the laws of intestacy (i.e. dying without a Will), her estate was going to be divided between her husband and her children. This would leave the husband in very reduced financial circumstances. The children believed that the estate should have gone to their father and did not want to inherit their shares.

It's unusual, but it happens.

Inheritances in Canada are not taxable, so accepting an inheritance won't cause you tax problems, even if you're already in a high tax bracket. However, accepting certain property might affect your finances. It could mean that you now to have to pay for maintenance and property tax on real estate, or pay insurance on valuable items.

It's also possible that a beneficiary might refuse an inheritance on purely emotional grounds. Dealing with the aftermath of the death of a loved one brings out strong emotions of every description.

If a beneficiary does not want to accept an inheritance, he or she can turn it down. It is a gift, not an obligation. It's referred to as waiving an inheritance.

To bring this about, the beneficiary would have to give the waiver in writing. There is no prescribed form of waiver in our Surrogate Rules of Court. In the cases that I've been involved in, I drafted a waiver form for the beneficiary to sign in front of a witness because I wanted the waiver to be clear and complete. I also wanted to make sure that beneficiaries were not being pressured by anyone to give up their inheritances.

The waiver form doesn't go to the court (unless there's some kind of dispute). The waiver is kept by the lawyer who acts for the estate/executor. Normally when someone waives a gift, the gift falls back into the residue of the estate and will then be paid or given to someone else in according to the Will, or according to the laws of intestacy. That is all arranged and fully documented by the estate lawyer before any money is paid out.

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