There are times when it may make sense to adjust the beneficiaries of an estate. Perhaps someone is receiving assets they would rather pass on to someone else, or maybe the will as drafted has unintended tax consequences.
One solution to this situation is a disclaimer of the estate. When done correctly, disclaiming an interest in an estate can help avoid tax consequences — but it’s an area where it’s easy to make costly mistakes.
What Is a Disclaimer?
A disclaimer or waiver of inheritance is, essentially, a refusal to accept property or assets from an estate. When a beneficiary disclaims an inheritance, they are choosing not to receive certain assets or income from the estate.
This can be a strategic decision, especially if accepting the inheritance would create adverse tax consequences. By properly refusing an interest, the beneficiary may be able to prevent a tax burden from falling on them — provided the disclaimer meets the requirements set out in the Income Tax Act.
Valid vs. Invalid Disclaimers
Disclaimers come with specific legal requirements that determine whether they are valid or invalid — and the distinction can have significant tax implications.
What Makes a Disclaimer Valid?
At common law and under the Wills, Estates and Succession Act (WESA), a valid disclaimer occurs when a beneficiary refuses to accept a gift or inheritance without directing who should receive it instead. In this case, the distribution of the disclaimed property is determined by the will or trust, not by the beneficiary.
Because the property never actually vests in the beneficiary, a valid disclaimer is not considered an assignment or disposition of property. It’s as if the gift was never made.
To ensure validity, a disclaimer must be made within three years from the date of death of the testator. It must also be made before the beneficiary receives any benefits from the disclaimed interest, including income or any other form of benefit from the estate or trust.
What Makes a Disclaimer Invalid?
An invalid disclaimer occurs when the beneficiary determines who will receive the disclaimed asset, rather than letting the will decide, or when the beneficiary has already received income or other benefits from the estate before disclaiming.
In these cases, the act is no longer a disclaimer but rather a release, surrender, or assignment of the interest. This means the person is giving up something they already accepted — and that can trigger tax consequences, since it’s treated as a disposition for income tax purposes.
Why Proper Legal Advice Matters
Because disclaimers can have complex tax and legal implications, it’s important to seek professional advice before taking any action. A properly structured disclaimer can help protect beneficiaries and ensure the estate is administered in accordance with the deceased’s intentions.
Next steps
If you have questions about disclaimers, tax law or probate in British Columbia, our team at Westcoast Wills & Estates can help. Contact our offices today and one of our skilled lawyers will guide you through your options and help you avoid common pitfalls in estate administration.
