Qualified Disclaimer

What is ‘Qualified Disclaimer’

A refusal to accept property that meets with provisions set forth in the Internal Revenue Code Tax Reform Act of 1976 allowing for the property or interest in property to be treated as an entity that has never been received. These types of refusals can be used to avoid federal estate tax and gift tax, and to create legal inter-generational transfers which avoid taxation, provided they meet the following set of requirements:

1. The disclaimer must be made in writing and signed by the disclaiming party.
2. The disclaimer must identify the property, or interest in property that is being disclaimed.
3. The disclaimer must be delivered, in writing, to the person or entity charged with the obligation of transferring assets from the giver to the receiver(s).
4. The disclaimer must be written less than nine months after the date the property was transferred. In the case of a disclaimant aged under 21, the disclaimer must be written less than nine months after the disclaimant reaches 21.

Disclaimed property is given to the “contingent beneficiary” by default.

Explaining ‘Qualified Disclaimer’

Due to the strict regulations that determine whether disclaimers are considered “qualified” according to the standards of the Internal Revenue Code, it is essential that the renouncing party understand the risk involved in disclaiming property. In most cases, the tax consequences of receiving property fall far short of the value of the property itself. It is usually more beneficial to accept the property, pay the taxes on it, and then sell the property, instead of disclaiming interest in it.

When used for succession planning, qualified disclaimers should be used in light of the wishes of the deceased, the beneficiary and the contingent beneficiary.

Further Reading

  • Public sector financial management reform: A case study of local government agencies in Indonesia – ro.uow.edu.au [PDF]
  • Fifth Circuit Upholds Qualified Disclaimer – www.questia.com [PDF]
  • Analysis the Changes Opinion on Qualified be Disclaimer Opinion to the Financial Statements Local Government (Case Study: Government of Palopo city) – ojs.amhinternational.com [PDF]
  • A political–economic analysis of auditor reporting and auditor switches – link.springer.com [PDF]
  • Reactions of the Spanish capital market to qualified audit reports – www.tandfonline.com [PDF]
  • Using experimental economics to measure social capital and predict financial decisions – www.aeaweb.org [PDF]
  • Auditor economic incentives and going-concern opinions in a limited litigious continental European business environment: empirical evidence from Belgium – www.tandfonline.com [PDF]
  • Impact of financial constraints on innovation: What can be learned from a direct measure? – www.tandfonline.com [PDF]