If I refuse an inheritance, can I name a replacement beneficiary?

Another interesting reader question. And my answer is both yes and no, depending on what your goal is.

If you refuse ("waive") your inheritance,  you will sign a Waiver document that basically says "no thanks, I don't want it". That is the full extent of your involvement. The inheritance that you don't take will be dealt with by the executor according to the will. You will have no control over what happens to it because you will have taken yourself out of the picture.

If your goal is to get your inheritance into the hands of another person or a charity, waiving your inheritance is probably not the way to go.

There are a couple of options open to you. One is to sign an "Assignment and Direction to Pay" document and give it to the executor. This means that you are acknowledging and accepting the inheritance but asking that they write the cheque to someone other than you. Be careful that you are not asking that it be paid to someone who can't accept it, such as a minor, or a disabled person who has a trustee. In those cases you must direct that it be paid to a legal representative (i.e. a trustee) on behalf of the minor or disabled person.

The other option is to accept the inheritance and receive the money, then give some or all of it to whoever you want.

With both of these options you will have to go through the usual steps required of a beneficiary, such as signing a Release when the estate is done.

What does an executor do if a beneficiary doesn't want his inheritance?

A while ago, I blogged about whether or not a beneficiary could turn down an inheritance (which he can). Click here to read that post. That's fine from the beneficiary's point of view, but what if you're the executor? What are the logistics of probating and administering an estate when a beneficiary just doesn't want what was left to him under the Will?

In most of the cases I've seen, a beneficiary who turns down an inheritance is doing so "in favour of" another person. For example, a woman with a husband and children died without a Will. Instead of dividing up the estate among the husband and children as the law dictated, all of the kids agreed that they would rather their father have the mother's estate. Each of those children turned down the inheritance, but only did so on the understanding that their father would get their share. They didn't want one of the siblings or a charity or the government or anyone else to have their share.

In this case, the application for the court (in this case an Application for a Grant of Administration) was prepared just as the law said that it should. The schedule of beneficiaries asked who was entitled to receive the shares of the estate and we described the husband and the children as those entitled to them. In other words, on the face of the documents, there was no indication that the children might turn it down.

We had each of the children sign an Assignment of their share. This means that each of them asked the administrator of the estate to pay their share to their father rather than to them. The Assignments were signed and witnessed. Each child was required to see a lawyer of his or her own to make sure that they knew what they were signing. When the estate was ready to be paid out, the Assignments were followed and the entire estate went to the father.

Occasionally there will be an estate where a beneficiary doesn't want to receive his or her share but won't co-operate by signing anything. That of course is someone who is trying to make a point! If the executor or administrator doesn't know where that person lives or cannot get payment to them, he might end up going to court to ask a judge for permission to pay the inheritance somewhere else. That could be to the Public Trustee or to another beneficiary.

The executor or administrator shouldn't pay someone's inheritance to another person or organization without either a written Assignment or an order of the court.

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.