Written by attorney Anne Debelius Lopiano

Renunciations & Disclaimers

RENUNCIATION AND DISCLAIMERS 1. Renunciations seem to have mostly disappeared from the Maryland E&T statutory scheme, with the enactment of the Maryland Disclaimer statutes (E&T ? 9-201-9-216), except as follows: ? 9-102. Renunciation by testamentary trustee (emphasis supplied) " (a) General. -- A trustee appointed by will to execute a trust contained in it may decline to accept the appointment by filing a statement of renunciation with the register of the county in which the will is admitted to probate before he receives property or performs an act pursuant to the trust. "(b) Effect. -- Unless the will provides otherwise, the trust shall thereafter be administered as if the trustee had not been appointed. The renunciation shall not be construed to release or impair the right of the person to a legacy under the will by which he was appointed trustee, unless the legacy is expressly declared in the will to be compensation for his services as trustee. "(c) Application of rules. -- Unless the will provides otherwise, in all cases not provided for in this section, a trustee may renounce or resign his trust only in accordance with the Maryland Rules." 2. However, one may still renounce all kinds of rights. The legal effects (both tax-wise and as to how title then vests) of renouncing a property right are distinctly different from the effects of, respectively, a) an assignment, and b) a disclaimer. The Maryland Attorney General issued an opinion that seems to offer the best rules as to such distinctions as between and among assignments, renunciations, and disclaimers. 3. WHAT IS A RENUNCIATION? 61 Op. Atty Gen. Md. 882,3 (1976) instructs that "[a written] Renunciation, unlike assignment, ... involves the refusal to accept or receive the testamentary gift and causes it to pass directly from the estate of the decedent as if the renouncing heir or legatee failed to survive the decedent thereby rendering it impossible for him to take," citing Bouse v. Hull, 168 Md. 1 (1935),still good law. 4. WHAT IS AN ASSIGNMENT? Property that is assigned is considered as coming from the distributee under the will of the decedent rather than from the decedent himself. 38 Op. Atty Gen. 282 (1953) as cited in 61 Op. Atty Gen. Md. 882, 2 (1976) re inheritance tax obligation falling on the original distributee or legatee rather on the ultimate assignee/taker. " is the assigning legatee who determines to whom the legacy should go, and in order to make such a designation, the legatee must be regarded as having accepted it from the decedent for that purpose. The fact that title is never actually conveyed from the personal representative to the assigning legatee does not diminish the ownership right exercised by the assignment." 61 Op. Atty Gen. Md. 882, 5 (1976) NOTE: CONCLUSIONS: Therefore, in the opinion of this writer, if a legatee (or heir of an intestate estate) assigns her right to her share of the estate to one or more other legatees or heirs, that assignee, even if a collateral heir for purposes of the Maryland Inheritance tax, will still take her assigned share free of inheritance tax. If an assignor assigns her share of an estate without valuable consideration, then she has made a gift, which would be subject to her lifetime limit of tax-free gifts, over which limit she would reduce her federal estate tax exemption. Distinguish: If however, an heir or legatee merely renounces her share, that share passes back into the estate as though she had died before the testator (or intestate deceased). This means that the renounced share is to be divided among all other legatees or eligible heirs. If the only other legatee or eligible intestate heir is a collateral heir (such as a niece), then the neice will be subject to the Maryland Inheritance tax. NOTE: DISTINGUISH: Even if one has exercised a written renunciation of a right, that does not mean that the IRS, and by extension the state of Maryland, will agree not to impose estate tax on original distributees, legatees, or intestate heirs who have merely executed renunciations or assignments. For relief from estate tax which would otherwise be imposed on an inheritance, (whether inherited by operation of law, including joint title, or otherwise by the death of a decedent) one must exercise a QUALIFIED DISCLAIMER. 5. WHAT IS A DISCLAIMER? WHAT IS A QUALIFIED DISCLAIMER? DISTINGUISH: The Maryland statutorily defined disclaimer and the federal statutorily defined disclaimer are similar but do not entirely mirror each other in language or in effect. Two big differences are: 1) The Maryland Disclaimer Act, at E&T 9-105 et seq. does not contain a 9 month deadline for the execution of an effective disclaimer; whereas the federal disclaimer statute at IRC? 2518 does contain a 9 month deadline for the execution of a "qualified disclaimer." 2) IRC? 2518 disclaimer provisions, being federal law, cannot control the transfer of title or ownership of real property, tangible personal property, ordinary bank accounts, or trust interests (despite the wording of the statute), but rather can only control the federal estate tax effect of the disclaimer and ownership of assets that are creatures of federal legislation, such as IRAs, 401ks, and other qualified ERISA plans. The provisions of Maryland E&T 9-105, et seq,. being state law, do actually control the ownership to real property, tangible personal property, ordinary bank accounts, and trust interests. 3. There are 12 statutes in the Maryland Uniform Disclaimer of Property Interests Act at E&T Code sections 9-201 through 9-216, which control the ownership of (at least) real property, tangible personal property, ordinary bank accounts, death benefits not controlled by federal law (such as ERISA) and trust interests, as a result of valid Maryland disclaimers . PRACTICE POINTER: If you are having your client disclaim any interests for estate tax reasons -- be really careful that the resulting ownership incidents of the disclaimed interest is what you and your client intend. You do not want to have a "qualified disclaimer" for purposes of the estate tax law, only to find that, because of a mistake in wording, you failed to achieve the desired ownership result under the Maryland law.

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