US equivalent to a deed of variation?

[Paul Miller]

What is the name of your state? California

My aunt passed away and has no husband and no children. My dad is her last surviving sibling, and is her sole beneficiary. My dad has 2 children and his deceased brother has 4 children. Technically and legally, my cousins appear to not be entitled to anything since my dad is the sole heir after their dad died.

My dad doesn't need the money, actively doesn't want the money and spends all his time and energy caring for my mom, so he wants to have as little to do with this process as possible. The UK has something called a deed of variation, where all or part of an inheritance can be redirected by the heir to someone else they choose, and it legally looks just as if the deceased had left it to them directly. Is there anything equivalent in US law?

In an ideal scenario, my dad would designate all 6 of may aunt's nieces and nephews as equal beneficiaries and the balance of the estate would be split 6 ways and go straight to them, bypassing my dad.

 

[Taxing Matters]

The U.S. does not have the exact equivalent of that. What your father can do is what is called a disclaimer of his interest in the estate. The effect of doing a disclaimer is that your father will be treated as though he predeceased his sister. What that means is that his share of the estate will go to hte persons who would have received it under her will (if she had one) as though he had died before her or, if she had no will, then to the next persons in line under the state intestacy law, again as though he had died before her. The key point here is that with a disclaimer he does not get to control where his share of the estate goes. The upside though is that if the disclaimer is done properly and within 9 months of her date of death your father won't have any federal gift tax issues as a result of the disclaimer.

His other option is to take the inheritance and then make gifts of what he gets to the people he wants to have them. But depending on the details of that he may end up having to file a federal gift tax return and use up some of his unified credit against federal estate and gift taxes. Whether that's something that might be of concern to him depends on the details of his financial situation and his plans for disposing of his assets.

 

[Paul Miller]

Thank you.

Is there a reason we don't have a similar law in the US? It seems to make so much sense in a case like this. Maybe this just isn't a common enough case. We haven't seen the will yet, but have been given a heads up what to expect. Hopefully it will be written in a way that a disclaimer will work, but we aren't holding our collective breath.

Thanks again.

The U.S. does not have the exact equivalent of that. What your father can do is what is called a disclaimer of his interest in the estate. The effect of doing a disclaimer is that your father will be treated as though he predeceased his sister. What that means is that his share of the estate will go to hte persons who would have received it under her will (if she had one) as though he had died before her or, if she had no will, then to the next persons in line under the state intestacy law, again as though he had died before her. The key point here is that with a disclaimer he does not get to control where his share of the estate goes. The upside though is that if the disclaimer is done properly and within 9 months of her date of death your father won't have any federal gift tax issues as a result of the disclaimer.

His other option is to take the inheritance and then make gifts of what he gets to the people he wants to have them. But depending on the details of that he may end up having to file a federal gift tax return and use up some of his unified credit against federal estate and gift taxes. Whether that's something that might be of concern to him depends on the details of his financial situation and his plans for disposing of his assets.

 

[Zigner]

Thank you.

Is there a reason we don't have a similar law in the US? It seems to make so much sense in a case like this. Maybe this just isn't a common enough case. We haven't seen the will yet, but have been given a heads up what to expect. Hopefully it will be written in a way that a disclaimer will work, but we aren't holding our collective breath.

Thanks again.

Because there is no need for it. What your dad wants to do is to gift his inheritance to someone else. Once he gets it, then he can do whatever he wants with it.

 

[Paul Miller]

The second paragraph in the response by "Taxing Matters" explained very succinctly the potential downsides of accepting and then gifting. The UK law would be very beneficial in this case.

 

[Taxing Matters]

The second paragraph in the response by "Taxing Matters" explained very succinctly the potential downsides of accepting and then gifting. The UK law would be very beneficial in this case.

Even if a state had a law like that of the UK it would not help to avoid the federal gift tax consequences. The only reason the disclaimer does not trigger gift tax is that the person making the disclaimer has no power to direct to whom the disclaimed inheritance goes. If the person has the right to to direct where the property goes he will be considered to have made a gift of that property, with all the various gift tax consequences that go with it.

 

[Paul Miller]

Even if a state had a law like that of the UK it would not help to avoid the federal gift tax consequences. The only reason the disclaimer does not trigger gift tax is that the person making the disclaimer has no power to direct to whom the disclaimed inheritance goes. If the person has the right to to direct where the property goes he will be considered to have made a gift of that property, with all the various gift tax consequences that go with it.

You just described the current US law, not the UK law. The UK law allows an heir to designate 1 or more alternate beneficiaries for all or part of their share, and only after that change do they disclaim the inheritance. That is the whole point. It acts like disclaiming inheritance in the US, if we first allowed the heir to specify where the inheritance would go. Because of that there would be no gift tax and no $15,000 per year tax free gift limit, and no impact on my dad's own lifetime exemption.

I know it doesn't work that way so the question is moot. I was just wondering if there is an obvious flaw or other reason why we don't allow an heir to change the beneficiary in a will. Maybe concerns over pressure and elder abuse? I don't know. That is why I asked.

 

[Taxing Matters]

You just described the current US law, not the UK law. The UK law allows an heir to designate 1 or more alternate beneficiaries for all or part of their share, and only after that change do they disclaim the inheritance. That is the whole point. It acts like disclaiming inheritance in the US, if we first allowed the heir to specify where the inheritance would go. Because of that there would be no gift tax and no $15,000 per year tax free gift limit, and no impact on my dad's own lifetime exemption.

No, you miss the point. It is the fact that you get to designate who gets it that would trigger the gift tax consequences in the U.S. That in the UK you do it before you do the equivalent of the U.S. disclaimer doesn't matter. The whole reason the disclaimer avoids gift tax in the U.S. is that the person doing the disclaimer has absolutely no role in deciding who gets the asset and does not get to enjoy any of the benefits of the asset. If the law here allowed the heir to designate who gets the gifts he ends up disclaiming, he would be treated as though he received the property and then made the gift of it himself. There would be no getting around the gift tax that way. Congress, Treasury, and the courts have shut down pretty much all efforts by taxpayers to control where gifts go but avoid having them treated as gifts for gift tax purposes.

I was just wondering if there is an obvious flaw or other reason why we don't allow an heir to change the beneficiary in a will. Maybe concerns over pressure and elder abuse? I don't know. That is why I asked.

The main reason is that the voters have not in any state made a big push for a system like the UK one. Our system is set up on the premise of the decedent deciding where his/her assets go. So the idea is that if the beneficiary does not want what the decedent wanted to give him then the inheritance should go to the next person that the decedent would have wanted to get it. If voters want a system like the UK one they'd need to push their legislature to adopt it. There is little reason for making that push. As I said, that would end up triggering gift tax consequences if a state permitted that. That being the case, that system would be really no different than the beneficiary simply taking his inheritance and making the gifts he wishes to make. So since the same goal with the same consequences can be achieved now, what benefit would the UK concept provide?

 

[TrustUser]

hi tm,

this brings up an interesting thought that i had never thought about, before. what if my trust stated "john smith is to decide how the assets of this trust is to be distributed. if john smith is deceased, then jane doe shall decide."

i have no idea how trust law would work with this, since i have never seen it, or done it. do you know ?

 

[Zigner]

hi tm,

this brings up an interesting thought that i had never thought about, before. what if my trust stated "john smith is to decide how the assets of this trust is to be distributed. if john smith is deceased, then jane doe shall decide."

i have no idea how trust law would work with this, since i have never seen it, or done it. do you know ?

What you describe is simply a successor trustee.

 

[TrustUser]

hi zig,

a successor trustee does not decide who to give assets to.

 

[Zigner]

hi zig,

a successor trustee does not decide who to give assets to.

They CAN, if so directed in the trust document.

 

[Taxing Matters]

hi tm,

this brings up an interesting thought that i had never thought about, before. what if my trust stated "john smith is to decide how the assets of this trust is to be distributed. if john smith is deceased, then jane doe shall decide."

i have no idea how trust law would work with this, since i have never seen it, or done it. do you know ?

You could do that, though the main reason to give that power to someone other than the trustee of the trust is if you didn't trust John or Jane to manage the trust properly but still wanted them to be the ones to decide who gets your stuff, perhaps because they'd know your wishes better than the trustee would. So, for example, you might do that if you had a professional trustee manage the trust and wanted a close friend or family member decide where the stuff goes.

What you describe is simply a successor trustee.

I disagree. What TrustUser describes is a person granted the power to decide dispositions of trust property. That person is not necessarily a trustee or successor trustee.

 

[TrustUser]

hi tm,

i guess the reason i was asking is because it would be a way to do what the op wants to do. have you ever come across a trust in which someone else was selected, to decide who to give the assets to ?

if the aunt had let the brother (op's dad) make his selection, he could have chosen his 6 nieces and nephews, himself, or a combination ?

i thought perhaps you were gonna tell me that this was not part of usa trust law. i know there are some things that are not allowed.

 

[Zigner]

What TrustUser describes is a person granted the power to decide dispositions of trust property. That person is not necessarily a trustee or successor trustee.

I didn't say that it was necessarily a trustee or successor trustee.