Disclaiming Inheritance: Transfer on Death account

What is the name of your state (only U.S. law)? Arizona

My brother recently died unexpectedly from a heat stroke. Unknown to me, he had named me as his beneficiary for his Transfer on Death IRA accounts and various stock investment accounts. I was told that I had 9 months to either get a new IRA account and transfer the stocks into my account or to simply disclaim the inheritance.

So far it has been 3 months and I have done nothing at all about it.

I do not want any of this inheritance because of the huge tax consequences. I want to disclaim all of it.

Where can I find the forms to disclaim this inheritance? I would like to do it myself without getting an attorney involved.

What if I just do nothing? What happens after the 9th month if I do absolutely nothing?

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One thing I need to add to this post is that as of yet, there has been no will found, and there is no executor for his estate. No one has filed anything at all with probate court-- in other words-- no probate has been started yet. He had about $400,000 in debts (mostly credit cards and mortgages) and about $70,000 in assets (mostly stocks). So no one in the family wants the huge responsibility of being the executor for a hopeless insolvent estate with lots of creditors and not enough assets to go around to pay them.

So, can the disclaimer form just be sent to the IRA investment company, or does it have to go to probate court?

I do not want any of this inheritance because of the huge tax consequences. I want to disclaim all of it.

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What huge tax consequences?

There are no income tax consequences for the IRA's until money is distributed from the IRA's. If you are the named beneficiary of IRA's, you can re-title them as inherited IRA's and will only be required to take annual distributions based on your life expectancy.

And, if the other accounts contained investments (stocks, bonds, etc), then they receive a step-up in cost basis to their value on the day that your brother passed away. If you sell them reasonably soon, there should be little or no capital gains. And, even if there are gains upon sale, the max rate for long-term capital gains is still only 15% of the gain.

I don't know if the $70K you mention includes the accounts on which you are a beneficiary. If you disclaim, the funds will most likely become part of his probate estate. Sure as shootin', one of the creditors will open probate so that they can gain some repayment of the outstanding debts.

I don't know AZ law well enough to know if there is any way that the creditors can reach the IRA's and TOD accounts if you do not disclaim. I doubt it. But, you really should pay a few hundred bucks for consultation with an attorney before you do anything.

ADDED: I'll take back the "I doubt it" part of the last paragraph if I am reading AZ statutes correctly:

14-6102. Nonprobate transferees; liability for creditor claims and statutory allowances

A. Except as otherwise provided by law, a transferee of a nonprobate transfer is subject to liability to the decedent's probate estate for allowed claims against the decedent's probate estate and statutory allowances to the decedent's spouse and children to the extent the decedent's probate estate is insufficient to satisfy those claims and allowances. The liability of a nonprobate transferee may not exceed the value of nonprobate transfers received or controlled by that transferee.

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Yes, the $70,000 I mentioned includes the accounts on which I am the beneficiary.

So then, if I did accept the transfer on death accounts, I would just end up owing that money back to the creditors of his estate.

What happens if I do absolutely nothing?

If I never sign anything to transfer the accounts into my name, what would be the outcome?

My point is that it seems unfair to me to have to pay an attorney (and court fees, etc.) to reject an inheritance I never wanted in the first place. The cheapest thing is to do nothing. What would be the consequence of doing nothing?

And thank you for the information. I'm sure glad I checked here first before even thinking about accepting those transfer on death accounts. That would have been a costly mistake for me.

Please talk to a CPA or certified tax planning professional to find out IF there is any tax liability on this at all before you decide whether you want to disclaim. There may be state taxes but there almost certainly will be no federal taxes. You may be giving away a gift for all of the wrong reasons.

DANDY DON IN OKLAHOMA ([email protected])