How Inheritance and Estate Tax Waivers Work

An inheritance or estate waiver releases an heir from the right to claim assets in the event of another person's death. A legal document is drawn and signed by the heir that forgoes the legal rights of the items.

Personal motivators aside, there are several main legal reasons why an individual typically utilizes a waiver of inheritance or estate. The heir could be liable for federal and state taxes based on the estate's value. The heir may find maintaining property or other assets to be inconvenient. If an individual is currently in bankruptcy or a lawsuit, that individual may agree to a waiver to protect the assets from seizure from creditors.

The waiver must contain specific verbiage to be considered complete and binding. The heir must state his or her name, and the name of the deceased individual as well. A general waiver of all benefits relating to the estate of the decedent is appropriate. However, if any specific items were personally designated to the heir, or if the heir has an entitlement to any items, a waiver should list the specific items being waived. The contract should state that the decision is being made freely and without coercion to be legally established.

Individual states govern the laws relating to wills and estates. Therefore, each state has a different set of rules relating to waiving an inheritance or estate. In general, the disclaimer must be a written document that is filed with the court having jurisdiction over the estate. The executor of the will must receive a copy of the disclaimer. For the waiver to be valid, the heir must not receive compensation or other benefits for agreeing to revoke rights in certain items.

For a waiver to be valid, it must be submitted in accordance with state laws. Typically, a waiver is due up to nine months subsequent to the decedent's death. If the deadline passes for filing a disclaimer, the heir must take possession of the distributed assets. Federal estate taxes, state estate taxes, and state inheritance taxes are also due approximately nine months after the date of death. The taxes are calculated based on the taxable estate value, and estate and inheritance taxes must be paid before assets are distributed to the beneficiaries. Federal taxes may not be due if the taxable estate is below specified thresholds.

Upon filing a waiver, the executor of the estate has complete responsibility for the distribution of assets. A waiver may not designate another individual as the new heir, as this is not legally acceptable. If no additional guidelines or instructions are outlined in the will, the executor has the discretion to transfer the items to another individual, to an entity not listed in the will or to a charitable cause. For these types of transfers, the probate court must approve the decision.

The main determinant of how a waiver works is contingent on the state's requirements. Certain states require certain verbiage or actions, depending on the relationship between the heir and the deceased. For example, Alabama requires a waiver for decedents born prior to 2004. Indiana requires a waiver if the decedent was a resident of the state, except if the estate is being transferred to a surviving spouse. Ohio does not require a waiver to be filed if the transfer is to a surviving spouse and the value of the estate is less than $25,000. Eighteen states have restrictions or requirements on the use of a waiver, and most of these are related to the date of death. All other states do not require a legal waiver to be filed.