Episode summary
Key Rules And Pitfalls To Execute Qualified Disclaimers Successfully, With Dave Haughton
Financial Advisor Success (Kitces)
· · 30 min · Hosts: Michael Kitces · Guests: David Haughton
Summary
Qualified disclaimers can be a useful estate-planning tool when an heir does not want inherited property or wants assets to pass in a more tax-efficient way. David Haughton explains that disclaimers can help bypass estate inclusion, avoid using gift tax exemption, shift assets to heirs with better income-tax treatment, or avoid taking on an unwanted or risky asset such as a problematic property.
But the technique is highly rule-bound. David says a disclaimer must be in writing, delivered on time, made before the beneficiary accepts the property, and carried out without the beneficiary directing where the asset goes. He emphasizes that actions like using inherited accounts, changing allocations, or otherwise treating assets as owned can jeopardize the disclaimer, while some limited administrative actions may not.
For advisors, the main message is to slow down after a death and coordinate with the estate attorney before moving assets. The host and David stress a sequence of questions: can the client disclaim, where would the asset go, and should they disclaim at all? That framework matters because a rushed transfer can destroy planning opportunities, and because state-law issues like creditor claims, Medicaid, or lower state estate tax thresholds can change the answer even when federal tax planning seems straightforward.
Key takeaways
- David Haughton says a qualified disclaimer can keep assets out of a beneficiary’s estate and avoid triggering gift tax consequences if done properly.
- The four requirements are written notice, timeliness, no prior acceptance, and no direction over where the disclaimed asset goes.
- Advisors should slow down after a death and coordinate with the estate attorney before transferring assets, because moving too quickly can eliminate disclaimer opportunities.
- David says disclaimers can matter far beyond ultra-high-net-worth planning, including creditor risk, divorce concerns, Medicaid planning, and basis management.
- For spouses, disclaimer planning can preserve flexibility around estate tax exposure, especially in states with much lower estate tax thresholds than the federal exemption.
Notable quotes
“there are some planning opportunities that can be lost if you move too quickly”
“when someone says, "I don't want to receive that. I know I am supposed to receive that”
“it needs to be in writing. So, you need to actually affirmatively make a statement to your fiduciary”
“it needs to be timely. So, it needs to be within the time limits set under the Internal Revenue Code, and that's 90 days”
“those assets need to pass without the direction of the person receiving them. Otherwise, it's going to be determined to be a gift in most circumstances”
How the episode opens
You want to be as quick as possible to show value, but a lot of times taking a beat, understanding that you should get the attorney involved to assess this, there are some planning opportunities that can be lost if you move too quickly.
Hello and welcome back to the Financial Advisor Technician podcast. I'm your host Adam Van Deusen. On today's episode, we're going to discuss qualified inheritance disclaimers and the important role that financial advisors can play in ensuring that they are completed properly.
Because while heirs often welcome an inheritance, sometimes disclaiming it will make sense, whether because of potential estate tax exposure, a desire to shift a pre-tax IRA to someone with a more favorable tax rate to draw post-death RMDs, or to shift after-tax assets to someone who may receive better step up in basement basis treatment in the future. Importantly though, executing a qualified disclaimer has a series of four very concrete requirements, including that it must be done before accepting the inheritance, which can sometimes conflict with an advisor's desire to fulfill the wishes of their recently deceased client expeditiously. So to help us dig deeper into this topic, I'm joined today by David Houghton, Vice President of Advisor Engagement at Hargrove MSO, to discuss why heirs might be interested in disclaiming an inheritance, the rules for doing so, and the role an advisor can play in making sure that any disclaimers are managed successfully.
So welcome David back to the Financial Advisor Technician podcast.
Thanks for having me. Happy to be on. — Yeah, so to start perhaps you could give our listeners a quick rundown of what inheritance disclaimers are and when they might be appropriate. — Yeah, so essentially what a disclaimer is, when you break it down to its most simple form, is when someone says, "I don't want to receive that.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- qualified disclaimers
- estate and tax planning
- inheritance deadlines
- asset protection
- inherited property
Companies and tickers mentioned
- Hargrove MSO
Watch the episode
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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Financial Advisor Success (Kitces), this episode and its artwork belong to Michael Kitces. Octagon is not affiliated with the show; this page is an independent summary.
