When a loved one passes away, probate proceedings are hopefully not the first thing on their relatives’ minds. Probate is, however, an inevitability, even when a trust is present and effective. But inheritance is not always the blessing that the public conscious imagines it to be. The simple truth is that owning property in California is an expensive endeavor that carries with it tons of monetary responsibility. Faced with the possibility of inheriting something an individual simply cannot afford, there is an option: a disclaimer of interest.
A disclaimer of interest is, essentially, a written statement to the probate court where someone who stands to inherit property or assets states that they do not wish to exercise that inheritance. They “disclaim” any right to receive the interest that they otherwise would.
Specifically, Probate Code section 275 provides: “A beneficiary may disclaim any interest, in whole or in part, by filing a disclaimer of as provided in this part.”
Moreover, Probate Code section 278 states, “the disclaimer shall be in writing, shall be signed by the disclaimant, and shall: (a) Identify the creator of the interest. (b) Describe the interest to be disclaimed. (c) State the disclaimer and the extent of the disclaimer.”
That said, executing a proper disclaimer is difficult to do, and with the complexities inherent to probate proceedings, securing the right attorney can make all the difference. At the Underwood Law Firm, our attorneys are well-versed in these matters and are ready to assist. As such, potential litigants should not hesitate to contact our office so that our team can begin helping you achieve your litigation goals.
How does a disclaimer of interest work?
When people with any assets or property die, they leave behind an “interest.” This interest is usually thought of as their property, both real and personal in nature. (Prob. Code § 267.) But, under the Probate Code, the term “interest” is actually quite broad. Yes, it does include real property and personal property, but it also refers to other assets and even fractional shares of those assets or property. (Id.)
It can also refer to legal interests or rights “related to property.” For instance, say someone is the successor trustee to a trust that contains the family home. When the trustee(s) pass away, that “right” of the successor trustee to begin managing the trust is, under the Probate Code, an interest. (Id.)
In turn, that means the successor trustee is one of perhaps many “beneficiaries.” A beneficiary is any person who is entitled to take an interest in the leftover estate. (Prob. Code § 262.) As a more straightforward example, if a parent leaves their home to their children under a will, then all of those children are beneficiaries under the code.
This is where the disclaimer comes in. There is an interest that will be adjudicated by the probate court. And that interest will be taken by one or more beneficiaries, whomever they may be. Any of those beneficiaries can file a “disclaimer.” This disclaimer is any writing that declines, refuses, renounces, or disclaims any interest that would otherwise be taken by a beneficiary. (Prob. Code § 265.)
Once filed, this former beneficiary is now referred to as a “disclaimant,” and they will receive none of the interest that they have disclaimed under the law.
Why do people file disclaimers of interest?
Given the circumstances in which a disclaimer is filed, one may ask why exactly anyone would want to disclaim an interest. Who would want to give up the chance to inherit property?
The answer to such a question is actually quite complex. First, there are cases where beneficiaries are inheriting property absent the presence of a trust. The value of the property aside, owning real estate in California is very expensive. Property taxes and utilities alone can run households tens of thousands of dollars every year, and the simple truth is that not every beneficiary is able to accept that financial responsibility.
This is not even considering the presence of a mortgage. If a lien is on the property in the form of a mortgage or deed of trust, that transfer to whomever eventually inherits the property. That is additional money that needs to be spent on maintaining the property every year.
Lastly, there’s the federal estate tax. This is reserved for larger estates ($12.6 Million as of 2022), but it is yet another consideration that beneficiaries may be thinking of when mulling the possibility of a disclaimer.
Inheriting property aside, there are also instances where multiple beneficiaries stand to inherit the right of becoming a trustee. Trustees are essentially those people who step in to manage a trustee once the former trustee (usually the person who created the trust) passes away. This, too, is a major responsibility, as trustees owe fiduciary duties to all other trust beneficiaries. (O’Neal v. Stanislaus County Employees’ Retirement Assn. (2017) 8 Cal.App.5th 1184, 1209.)
Because the trustee owes these duties, it means that they can be sued by other beneficiaries if they think the trustee is mismanaging the trust. (Vance v. Bizek (2014) 228 Cal.App.4th 1155, 1160.) These are just some of the considerations one needs to take in when one stands to inherit an “interest” in probate court. In that context, a disclaimer makes more and more sense.
What is the procedure for disclaiming an interest?
Because a disclaimer can often mean giving up property, which is incredibly valuable in California, properly filing one means adhering to strict statutory guidelines.
First, the disclaimer needs to list three distinct items: (a) the identity of the creator of the interest, (b) a description of the interest to be disclaimed, and (c) a statement of the disclaimer and the extent of the disclaimer. (Prob. Code § 278.) Second, the disclaimer has to be filed within a certain time frame. In order for the court to consider the filing “reasonable,” the interest needs to be disclaimed within nine months of the death of the creator of the interest. (Prob. Code § 279.)
The timing is also important because a beneficiary cannot “accept” the interest and then, later on, try to disclaim it. (Prob. Code § 285.) For instance, suppose Jack stands to inherit a house from his late mother, Jill. Jack cannot use the house as collateral to secure a loan and then subsequently disclaim any interest in the property. If a beneficiary accepts or takes actions indicating an acceptance of the interest, a disclaimer is not available.
The other side of this coin is that someone cannot change their mind about a disclaimer. Under the law, a disclaimer provided it’s effective and wasn’t secured via fraud is irrevocable and binding upon the beneficiary. (Prob. Code § 281.)
How the Underwood Law Firm Can Help
As each case is unique, probate beneficiaries would be well-served to seek experienced counsel familiar with the intricacies of the law surrounding succession and inheritance. At the Underwood Law Firm, our knowledgeable attorneys are here to help. If you are attempting to disclaim an interest, wondering whether you have already accepted one, or if you just have questions, please do not hesitate to contact our office.
Learn more here.