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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.

21 comments:

  1. Hi Lynne:

    I purchased your book 'How Executors Avoid Personal Liability' and found it very helpful. I have one question. In our situation, one of the residual beneficiaries (who is non-resident) is considering disclaiming part of the residual benefit to which he is entitled for tax reasons. In Ontario, can a residual beneficiary disclaim part of the residual benefit or can he only disclaim all of it?

    ReplyDelete
    Replies
    1. With a waiver or disclaimer, you're either in or out. However, a beneficiary can ask that a portion of his or her inheritance be paid elsewhere using an Assignment. This basically means that the beneficiary is in theory agreeing to be a beneficiary (i.e. not waiving) but asks that the payment be split between the beneficiary and someone else. This might happen, for example, if the beneficiary owed child support and needed to clear up the arrears. Executors don't always want to get involved with Assignments, since it's extra work for them.

      Lynne

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  2. Hi Lynne, helpful article as usual. Would the application for probate still list the beneficiaries who are refusing their gift/have signed a waiver releasing their interest?

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    Replies
    1. Yes, because the application for probate requires the executor to set out the will as it is, showing the testator's intentions. If the beneficiaries later want to disclaim something, that's done afterwards.

      Lynne

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    2. Thank you. I assume the same would be true for an intestate application as well?

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  3. Hello, I have been reading your blog and I have a question for you...

    If you are the sole inheritor and the executor, can you still waive inheritance? I don't want to sound like a bad person, but I really do not wish to inherit and I do not wish to be the executor either.

    ReplyDelete
    Replies
    1. You cannot be forced either to be the executor (assuming you renounce at the beginning of the estate in the proper manner), or to receive an inheritance.

      If you've already started on the estate, you can't walk away as executor until the court allows you to do that.

      Turning down an inheritance is actually pretty easy to do. You just sign a waiver saying you don't want it. This is usually signed with independent legal advice so that the court knows you're fully advised and waiving it voluntarily.

      Once you've waived it, the executor would carry on with the estate according to the will as if you had predeceased.

      So yes, you can turn down your inheritance, even if you're the executor.

      Lynne

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  4. Hi Lynne,

    I was hoping you would clear something up for me. If the beneficiary would be inheriting debt, would they still be able to waive it?

    ReplyDelete
    Replies
    1. Under what circumstances would the beneficiary inherit debt? Loans, caveats, etc must all be paid before beneficiaries receive anything, even if that means the assets all have to be sold without the beneficiaries getting anything. Can you give me an example?

      Lynne

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  5. Does this waiver option also apply if there was a will? Or do different rules apply in that case?

    ReplyDelete
    Replies
    1. Yes, you can waive an inheritance under a will.

      Lynne

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  6. If a beneficiary were "hostile" to the deceased and refused to either sign a waiver or accept the inheritance, would the other beneficiaries still inherit, or would the estate be in limbo until the courts stepped in? I ask because my sibling and I are to inherit our parents' estate but my sibling is estranged from the family - though still in the will - and will likely refuse to do *anything* - sign anything, claim anything - regarding the will/ inheritance for purely emotional reasons of "principle"; and I would like to know what impact, if any, this may have on my/ my family's share of the inheritance. Thanks so much.

    ReplyDelete
    Replies
    1. It's possible that the share of the person who won't participate would be paid to the Public Trustee of the province, simply so that the estate would not end up being held hostage by that person. Not doing anything doesn't necessarily mean that the person is waiving their inheritance and there is no automatic response to a person who won't participate. It's possible that a judge would decide to do something different with the person's share, such as give it to his/her children or divide it among other beneficiaries, but I would think the non-participation would have to go on for some time before that would happen. In general, judges don't seem to like to extinguish rights that were given to someone under a will simply for convenience.

      Lynne

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  7. This comment has been removed by the author.

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  8. Hi, what does this mean: person submitting rights to the court as a beneficiary? Does the Lawyer representing the estate for the executors(plaintiffs) also act for the beneficiary as the person submitting rights to the court. Thanks

    ReplyDelete
    Replies
    1. I don't know what that phrase means. Rights are not submitted to the court, but applications are submitted to the court to enforce rights. Perhaps that's what you mean? I can only guess what you mean by the first question, but I can answer the second one. The lawyer for the estate only works for the executor, not for the beneficiaries. In theory, the executor represents the beneficiaries, but if the estate is in court, most likely that relationship has broken down.

      Lynne

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  9. I am on disability (person with disability and cpp) I am wonder how an inheritance will effect my disability. I may be getting 2 inheritance (father and brother) but am worried that it may mess up my disability. The amount of the inheritance is not that much, not worth losing my disability for. Any help would be greatly appreciated. or being pointed in a direction of some reliable information, many thanks.

    ReplyDelete
    Replies
    1. You are right to be concerned because inheriting money can cause a beneficiary to lose disability benefits. The provinces allow different amounts to be owned by a person before they are cut off, so the exact amount is something you could find out about at your local benefits office.

      If your father and brother were aware of your disability, they may have planned around it by putting your inheritance into a trust. The type of trust used is called a Henson Trust, and is valid in all provinces except Alberta. When an inheritance is held this way, it does not cut off the beneficiary because the trust is discretionary - meaning that the trustee doesn't have to give you anything from it unless he or she thinks it's the best thing to do. Do you know whether your inheritance is held in trust? if your father and brother have already passed away, the person to ask is the executor of the will.

      Lynne

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    2. no it is not held in trust, and yes they have both passed away. Can the executor set up this trust after the passing of the person?

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    3. No, the executor doesn't have the legal authority to make that choice. He has to give you your inheritance.

      Lynne

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